Experient Health Highlights Consequences of Reimbursing Individual Insurance Premiums for Employees in Latest Blog Post

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The Internal Revenue Service (IRS) recently issued FAQs regarding the consequences for employers that do not establish a health insurance plan for their employee.

Experient Health took on the Internal Revenue Service's (IRS) most recently issued FAQs regarding the consequences for employers that do not establish a health insurance plan for their employee in latest Blog post. This includes premiums for individual health insurance, either inside or outside of the exchange.

Experient Health, a Virginia Farm Bureau company, uses its Blog to help educate the community about changes in health insurance under the Affordable Care Act (ACA).

“In Revenue Ruling 61-146, the IRS provided that if an employer reimburses an employee’s premiums for non-employer-sponsored health insurance, the payments are excluded from the employee’s gross income," Experient Health wrote. "This allowed an employer to pay an employee’s premiums for individual health coverage without the employee paying tax on the amount."

Issued on Sept. 13, 2013, IRS Notice 2013-54 states that these employer payment plans are considered to be group health plans subject to the ACA’s rules, including the annual limit prohibition and the preventive care coverage requirement.

“The Notice clarifies that these employer payment plans cannot be combined with individual health insurance policies, and thus fail to satisfy the ACA’s market reforms," Experient Health wrote. "As a result, effective for 2014 plan years, these plans are essentially prohibited.”

And there are consequences for employers if they do not act in accordance with these requirements.

Because employer payment plans do not comply with the ACA, the IRS has indicated that these arrangements may be subject to an excise tax of $100 per day for each applicable employee ($36,500 per year per employee). However, premium reimbursement arrangements made on an after-tax basis are allowed, according to Experient Health.

"Employers that plan on using after-tax premium reimbursement arrangements should be aware that these arrangements may be considered “employee benefit plans” subject to ERISA’s requirements."

To read more about the consequences of reimbursing individual insurance premiums for employees, visit the Experient Health Blog here.

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Stephanie Heinatz
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