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How?
the reimbursement amounts). In addition, the
“employers may establish payroll practices of forwarding post-tax employee wages to a health insurance issuer at the direction of an employee without establishing a group health plan, if the standards of the DOL’s regulation section 2510.3-1(j) are met.” This means that employers can still reimburse the premiums paid by an employee for an individual market plan. But, these reimbursements must be taxable (i.e., the employee pays income taxes and both the employer and employee pay FICA taxes on 1 Section 9832(a) of the Internal Revenue Code (“Code”), cross-referencing Code section 5000(b)(1).
regulation section 2510.3-1(j).
Conclusion
may change. This author is optimistic that this position could indeed change. However, unless and until there is a change in policy, employers that adopt an arrangement that reimburses the premiums paid by an employee for an individual market plan with non-taxable contributions will
Will the federal government ever permit employees to purchase an individual market plan
violation.
politics in Washington, DC change after the 2016 elections — and/or the newly reformed insurance markets stabilize over time — an argument can be made that the federal agencies’ current position
Prior to joining Venable, Chris served as tax and benefits counsel to the U.S. Senate Finance Committee. As Tax Counsel to the Finance Committee, Chris actively participated in the development of portions of the Patient Protection and Affordable Care Act, including the health insurance exchanges, the state insurance market reforms and all of the new taxes under the law.
a “group health plan” for purposes of ERISA, but the
another group health plan). Therefore, if the group health plan used to purchase the individual market
health plan” under the Code. that would be considered a “group health plan” 8 Code section 9815 was placed in Chapter 100 of the Code, which sets forth rules applicable to “group not subject to the insurance market reforms enacted under the Patient Protection and Affordable Care Act (“ACA”). [See Code section 9831(b), (c)]. 2 A Section 105 Medical Reimbursement Plan has
of a self-insured medical expense reimbursement discrimination in favor of highly paid individuals under a self-insured group health plan. Properly reimbursement plan in context, a strong argument in the context of these non-discrimination rules. justifying how the tax laws work in other areas, as well as attempting to describe this arrangement as something other than a “group health plan” under the Code.
9 See section 2711 of the Public Health Services Act (“PHSA”). The ACA added PHSA section 2711, requiring insurance carriers (in the case of individual or fully-insured group health insurance coverage) and employers (in the case of a selfimposed on the dollar value of “essential health
restriction, this plan will be found to have violated the annual limit restriction requirement. 13 under individual and small group market plan. HHS issued regulations implementing the “Essential benchmark plan. In most States, the “Essential health plan in the state’s small group market by enrollment [78 Fed. Reg. 12834 (Feb. 25, 2013)].
2711(a)(2)]. For plan years beginning on or after January 1, 2014, no annual limits may be imposed
premiums of an individual market plan are not
under an individual health insurance policy or a group health plan (fully-insured and self-insured). [PHSA section 2711(a)(1)]. On June 28, 2010, the Department of Health and Human Services (“HHS”), the Department of Treasury (“Treasury”), and the Department of Labor (“DOL”) (hereinafter referred
Question issued on January 24, 2013. See FAQs about Affordable Care Act Implementation Part XI (“FAQs”), Q&A#2, (explaining that a health reimbursement arrangement used to pay for the premiums of an individual market plan violated the annual limit restriction). 15 The ACA added new Code section 125(f)(3)(A), providing that an individual cannot use a Section 125 cafeteria plan to purchase an individual market plan
20 See PHSA section 2713. The ACA added PHSA section 2713, requiring “non-grandfathered” group health plans (both fully-insured and self-insured) to cover certain preventive health services with no cost-sharing. In other words, a plan cannot impose deductibles, co-payments, or co-insurance for the following preventive health services: (1) Evidence-based items or services recommended by the United State Preventive Services Task Force, Centers of Disease Control and Prevention, and (3) Evidence-informed preventive care and screenings supported by the Health Resources and Services Administration for infants, children, adolescents, and women. [See ACA section 2713(a) and 45 C.F.R. section 147.130(a)(1)]. On July 19, 2010, and again regulations implementing the requirement to cover the preventive services described above with no costsharing. [See 75 Fed. Reg. 41759 (July 19, 2010) and
22 Id. As discussed in footnote 11, to be considered “integrated” with another group health plan, the employee covered under the plan must also be (1) enrolled in the group health plan that is offered by the employer or (2) enrolled in a group health plan offered through the employee’s spouse’s employer.
3 The DOL issued identical guidance in Technical Release 2013-03, and HHS intends to issue guidance
regulations (“IFR”) implementing, among other things, new PHSA section 2711. [See 75 Fed. Reg. 37188 (June 28, 2010)].
2013-54 and the Technical Release.
10 Code section 4980D(b)(1).
market plan purchased inside the ACA exchange
23 Id.
11 In general, to be considered an “integrated” reimbursement arrangement, an employee receiving any reimbursements must also be (1) enrolled in another group health plan offered by the employee’s employer or (2) enrolled in a group health plan offered through the employee’s spouse’s employer, provided the underlying group health plans satisfy, among other things, the annual limit restrictions.
Code section 125.
a safe harbor which exempts an arrangement from
issued formal guidance in the form of a Revenue Ruling, holding that employer payments made under an arrangement to reimburse the premiums for an individual market plan are excluded from an
Section II.B. reimbursement arrangement is not considered a “group health plan” under the Employee Retirement Income Security Act (“ERISA”), the reimbursement arrangement will still be considered a “group health plan” under the Code for the reasons discussed in of a “group health plan” under ERISA and the Code are different. So, for example, there may be instances where an arrangement is not considered
This safe harbor is set forth under DOL regulation section 2510.3-1(j), which enumerates the following factors that must be met in order to take advantage coverage under an accident or health plan that is excludable from income of employees under Code Reg. section 1.125-1]. As discussed in footnote 15, a
the annual limit restriction on its own, the group health plan must be “integrated” with another group health plan that otherwise meets this requirement (as described in footnote 11). In addition, according
market plan sold inside the ACA exchange. [Section 125(f)(3)(A)]. 17 See Code section 125. 18 Prop. Treas. Reg. section 1.125-1(r)(2).
to purchase an individual market plan cannot be “integrated” with the underlying individual market
by the employer; (2) Employee participation in the program must be completely voluntary; (3) The employer cannot endorse the arrangement and the employer’s role is limited to (a) allowing the insurer through payroll deductions, and (c) remitting contributions to the insurer; and (4) The employer receives no consideration in connection with the arrangement, other than reasonable compensation for its administrative expenses.
19 Code section 9832(a), cross-referencing Code section 5000(b)(1).
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