ACA Compliance Deadline, Penalties for Noncompliance, and Transitional Relief for Smaller Employers

The Affordable Care Act is the law of the land – and employers have a lot of work to do to ensure they are in compliance with the employer mandate and other aspects of the sweeping health insurance reform law.

Can employers reimburse employees for health premiums purchased via an exchange or from an agent in lieu of setting up their own plan?

The Internal Revenue Service addresses these arrangements  – known as “employer payment plans,” in IRS Notice 2013-54. The IRS considers these plans to be group health plans, and when undertaken by an employer who is otherwise required to establish a group health plan and provide benefits to qualified employees, is not in compliance with the ACA.

According to the IRS, employers who do this in lieu of establishing a required ACA compliant health plan may be subject to an excise tax of up to $100 per day per employee. This could amount to a tax of up to $36,000 per employee per year, under Section 4980D of the Internal Revenue Code.

Is there any kind of relief for employers during the transitional period?

Yes. The IRS recently distributed Notice 2015-17 that allows a measure of relief for some employers from the above excise tax in four circumstances:

1.)   The plans are ’employer payment plans’ as defined in Notice 2013-54, provided the plan is not sponsored by an Applicable Large Employer (ALE) as defined in Paragraph (c)(2) of IRC 4980H (shared responsibility for employers regarding health coverage) and sections 54.4980H-1(a)(4) and -2 of the application.

2.)   The employer payment plan is an S corporation arrangement for shareholder employees who own 2 percent of the company or more.

3.)   The arrangements in question are to reimburse employees for Medicare premiums, or

4.)   The arrangements in question reimburse employees for TRICARE premiums within a health reimbursement arrangement (HRA).

Note also that the IRS allows for some temporary relief for small employers (those not designated as ALEs by IRC 4980H) for 2014 and up to July 1, 2015.  Generally, this relief will apply to employers with fewer than 50 full-time equivalents in the prior year.)

Special Arrangements for S Corporation Owner-Employees

According to the IRS (Notice 2015-17), S corporations are permitted to continue reporting health insurance reimbursement payments to 2 percent shareholders as described in IRS Notice 2008-1. Until the IRS issues further guidance, and at least through the end of 2015, the IRS will not assert IRC Section 4980D in enforcements against any such S corporation that fails to satisfy the ACA market reforms that involves a 2 percent shareholder-employee healthcare arrangement.

For More Information

For more information about how the ACA’s reforms apply to various types of group medical insurance plans, to include health reimbursement arrangements and arrangements wherein an employer provides reimbursement to employees for premium expenses paid for an individual or family insurance plan (as opposed to a group plan) see IRS Notice 2013-54.

For information about which employer plans will likely be found in non-compliance with the Affordable Care Act, see IRS Notice 2015-17. This notice also discusses transition relief arrangement specifics for smaller employers.

Please call or email us to discuss further.

Michael Braun

Franklin Benefits Group, LLC


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