Smart Benefits: Employers Can’t Pay for Purchase of Employees Individual Health Insurance

Smart Benefits: Employers Can’t Pay for Purchase of Employees Individual Health Insurance

The Departments of Health and Human Services (HHS), Labor (DOL) and the Treasury recently released three FAQs that confirm employers can’t pay for the purchase of their employees’ individual insurance. 

The newly release guidance stems from questions over whether either Section 125 (Cafeteria Plans) or Section 105 (Reimbursement Arrangements) of the IRS code allow employers to deduct premiums in a pre-tax manner or reimburse for individual premiums. 

The FAQs make clear that any employer payment that provides cash reimbursement for the purchase of an individual market policy is not compliant with the Patient Protection and Affordable Care Act (PPACA), whether the employer treats the money as pre-tax or post-tax to the employee. 

GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST

Likewise, if a Section 105 reimbursement plan is set up for the purchase of individual policies, these plans are also noncompliant. That’s because, even if the employer doesn’t assist an employee with their plan selection, they are still taking part by contributing cash for the policy purchase.

The new guidance also specifies that employers can’t compensate employees who have a high claims risk to enroll in an exchange plan versus joining the group health plan if offers. 

The excise fines for these violations, under Section 4980D, are $100 per day, per employee or $36,500 annually. However, these fines for each individual to whom such failure relates so if an employer also contributes to dependent coverage, the fines would also be incurred for each dependent per day as well.

Amy Gallagher has over 21 years of healthcare industry experience guiding employers and employees. As Vice President at Cornerstone Group, she advises large employers on all aspects of healthcare reform, benefit solutions, cost-containment strategies and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, and is often quoted by national publications on the subject matter. Locally, Amy is a member of SHRM-RI, the Rhode Island Business Group on Health, and the Rhode Island Business Healthcare Advisory Council.