Introducing the worst monetary penalty — on a per employee basis — an employer can subject itself to under healthcare reform.
The Internal Revenue Service (IRS) does not want employers thinking they can send employees to a health insurance exchange or the open insurance market with a tax-free contribution to help them pay premiums.
The IRS just issued a brief FAQ explaining that setting up a plan to which an employer contributes un-taxed cash that an employee can then use to pay premiums for insurance plans purchased on their own violates the Affordable Care Act’s ban on limits for essential health benefits.
The penalty for establishing such a plan — also known as a stand-alone health reimbursement arrangement (HRA) — will be $100 per day, per employee. That’s a possible $36,500 per year, per employee. Ouch.
HRAs must be ‘integrated’
The fallout: Companies will not be able to provide employees with tax-free funds with which to pay insurance premiums for non-employer-sponsored plans. Period.
Under the ACA, those kinds of arrangements are considered stand-alone health plans with set limits on coverage — the limit being the maximum amount of money the employer promises to contribute. And the law clearly bans lifetime and annual dollar limits on coverage.
What is allowed, however, are “integrated” HRAs. These are HRAs that are coupled with an employer’s group health plan — like many employers have currently established under high-deductible health plans for the reimbursement of copays and deductibles.
But the feds have also made it clear than an employer-sponsored HRA will only be considered “integrated” with a health plan if the employee who has the HRA is enrolled in that plan.
Taxed wages for assistance are OK
Many employers have come to the conclusion that it would be cheaper to provide employees with a lump sum of money to buy insurance on their own than sponsor a group health plan.
And if an employer wishes to help employees buy insurance on their own, it can still do so. The IRS’ recent guidance doesn’t take that option off the table (although the Obama Administration has said it would prefer that companies continue to offer coverage).
Employers can still offer that kind of assistance, but they have to do so by increasing employees’ taxable wages.