Employers Should Think Twice Before Reimbursing Individual Marketplace Premiums!

In recent months, some employers were considering providing cash reimbursements to employees for the purchase of individual marketplace policies as a means of avoiding compliance with the market reform and other provisions under the Affordable Care Act.  The Department Of Labor (“DOL”) has issued several rounds of guidance indicating that this was not permissible.  However, despite the previous guidance, this practice was still being touted as an acceptable and permissible option by some in the industry.  Recently released DOL FAQs make it crystal clear that employers are prohibited from providing a cash reimbursement via a section 105 plan (HRA) or any other mechanism to employees for the purchase of an individual marketplace policy, regardless of whether the reimbursement is on a pre-tax or after-tax basis. 

The DOL takes the position that such payment arrangements are part of a plan, fund or other arrangement established or maintained for the purpose of providing medical care to employees.  Therefore, such arrangements are considered “group health plans” and are subject to the market reform provisions of the Patient Protection and Affordable Care Act which cannot be integrated with individual and market policies.  Failure to comply with the market reform provisions under the Affordable Care Act can result in substantial excise taxes to employers. 

Employers are not prohibited, for example, from offering all eligible employees an increase in taxable compensation in lieu of providing health care coverage.  However, the increased taxable compensation should not be directly tied to the purchase of individual marketplace coverage.  In other words, the increased taxable compensation should not only be offered to those who actually purchase the individual coverage. 

Employers should work closely with their legal counsel to ensure that any such payment arrangements do not run afoul of the rules under the Affordable Care Act and other benefits related laws. 

*Provided by Clark Hill PLC. This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.