Premium Reimbursement Arrangements

Premium reimbursement arrangements have been a common practice of small employers wanting to assist their employees with the cost of health insurance but not wanting to be burdened with the administration of a group health insurance plan.  Under these arrangements an employer would reimburse an employee for all or part of their individual health care plan.

However, these arrangements are not consistent with market reform rules now imposed by the Patient Protection and Affordable Care Act (“ACA”) and as a result, the small employer (two or more employees) may be subject to a $100 per day per employee excise tax for maintaining such an arrangement.

Employers who are paying or reimbursing employees (whether pre-tax or after tax) for individual health coverage (i.e., not part of an employer’s group health insurance plan) should stop doing so by June 30, 2015.

In lieu of reimbursing or paying the employees individual plan premiums, employers should consider either (a) increasing the employee’s wages by an amount that would allow them to pay for their own coverage (but the “raise” may not be conditioned on maintaining coverage) or (b) consider a group health insurance plan (it may be possible to set up such a plan through a SHOP exchange) possibly in combination with a Section 125 cafeteria plan.

Note S Corporation’s may continue to reimburse 2% or greater shareholders for their individual plan premiums through December 31, 2015.  Further guidance for these 2% shareholder arrangements is expected for 2016 and subsequent years.