The Affordable Care Act imposes an excise tax — with the potential to reach $36,500 per affected employee per year — on employers that fail to abide by the law’s rules.
The tax can levied for things like failing to abide by the law’s maximum waiting period rules (full-time employees can’t be forced to wait longer than 90 days to be health plan-eligible), having out-of-pocket limits that exceed the law’s thresholds and failing to cover certain contraceptives.
But it can also be levied upon employers for providing cash — pre-tax or post-tax — to help employees purchase health insurance in the individual market. Arrangements like this — also known as “employer payment plans” — trigger this $100 per day, per affected individual excise tax.
However, the IRS just announced that it’ll be offering transition relief from the tax to small employers (those with fewer than 50 full-time equivalent employees) that have established these payment plans through June 30, 2015.
In other words, small employers won’t have to worry about the tax unless they still have one of these prohibited plans in place after June 30, 2015.
To recap, here’s what employers can’t do in this area that would trigger the excise tax:
- Offer cash to help employees pay for individual market coverage. The DOL says because such arrangements can’t be integrated with a group health plan, they are basically their own health plan — and they violate the prohibition on dollar limits for coverage (assuming you’re not offering employees an unlimited amount of funds).
- Offer high-risk employees a choice between plan enrollment or cash. An employer cannot approach an employee who is a high claims risk and offer the person the option of accepting cash (presumably to purchase coverage in the individual market) or enroll in a company-sponsored plan. The DOL says this amounts to discrimination — because those with health problems would be receiving a benefit that’s not available to employees without health problems.
Why small employers?
Now you may be asking: Why are small employers getting the break and not larger ones?
The answer is the problems and delays related to the Small Business Health Options Program (SHOP).
The SHOP was a major selling point to get small businesses on board with the health reform law before it was passed. It was supposed to be a marketplace in which small employers could compare health plans and offer multiple plan options to employees.
But, as with other part of the law, the program’s implementation has been stymied by delays and requirement cutbacks.
The IRS, in its notice about the excise tax transition relief period, said the relief was being offered because the SHOP market is “still transitioning and the transition by eligible employers to SHOP Marketplace coverage or other alternatives will take time to implement …”