Clarified Again, Individual Premium Reimbursement is Not Allowed

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The new ACA FAQ XXII Compliance of Premium Reimbursement Arrangements(FAQ XXII), published November 6, 2014, confirms that employers cannot reimburse employees on a pre-tax or after-tax basis for purchasing individual coverage in lieu of group health plan coverage as promoted by various vendors, TPAs and others.

FAQ XXII makes it clear that the Affordable Care Act prohibits any arrangement where an employer provides cash reimbursement on a pre- or post-tax basis for individual health insurance policies.  FAQ XXII states that any such employer payment arrangement for the purpose of providing medical care to employees is group health plan coverage subject to the market reform provisions of the ACA.

HRAs, health FSAs, certain other health care arrangements and other premium reimbursement arrangements do not violate these market reform provisions when integrated with a group health plan that complies with such provisions.  However, an employer health care arrangement cannot be integrated with individual market policies to satisfy the market reforms.  Consequently, such an arrangement may be subject to penalties and/or excise taxes which include up to $100 per day per person.

In light of this guidance, employers sponsoring these arrangements are encouraged to contact counsel for assistance in understanding the potential concerns raised by involvement in these practices and their resolution.

To summarize,

  • Employers cannot offer employees cash to reimburse the purchase of individual market policies;
  • For employees with high claims risk, employers cannot offer a choice between enrollment in its standard group health plan or cash;
  • Employers cannot cancel group policies, set up a Code Section 105 reimbursement plan using brokers to help employees select individual insurance policies or allow employees to access premium tax credits for Marketplace coverage.

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