Rose Report: Issue 27
When the Affordable Care Act was enacted in 2012, it gave companies with 50 or fewer employees the option to reimburse employees who purchase individual insurance from the Health Insurance Marketplaces rather than participate in a group plan. Effective January 1, 2014, this practice is no longer allowed.
On November 6, 2014, the US Department of Labor issued a set of Frequently Asked Questions, reiterating that reimbursements for health premiums are no longer permitted, regardless of whether they are purchased on the public exchange, or any individual health insurance coverage that is not part of a qualified group plan. Any company who still reimburses employees is subject to a fine of $100 per employee, per day.
Reimbursing employees specifically for healthcare plans would place employers into a group health plan, which is subject to market reforms and prohibition on annual limits for essential health benefits. The removal of the reimbursement practice is designed to prevent employers from limiting their payouts for essential healthcare.
If an employer has made reimbursements that were intended for healthcare and only issued to certain employees, it is important to reverse these as soon as possible. This may be done before W-2s are issued for 2014 to avoid penalties. Employers should work with their payroll companies to make adjustments and reverse the pre-tax income reflect these payments as post-tax, allowing it to be treated as taxable income. Before taking this action, employers should inform the employees ahead of time to let them know that this will be occurring. Employees who purchase their own insurance should also be informed that they can deduct their health insurance as part of health expenses on their taxes as well.
Moving forward, employers with fewer than 50 employees are permitted to pay an amount to their staff, post-tax, that may be used towards health insurance. The money may come in the form of a bonus, or a salary raise. The money may not necessarily be used for healthcare, and employer may not only give this money to those who purchase their own insurance. However, those who do elect to use it for health insurance may be able to have their employer transfer the payment directly to their healthcare plan.
Providing this type of compensation can be an attractive alternative to providing healthcare in a group plan, and gives the employer a positive image, especially to prospective employees.