Penalty Steep for Reimbursing Individual Health Insurance Plans (6/2/14)

In our May 19, 2014 article, we reported that the IRS had reiterated its position that its September 13, 2013 guidance prohibits an employer from paying for or reimbursing the cost of individual health insurance plans purchased by their employees on a pre-tax basis.

What is worth noting is that in addition to the guidance that such a practice fails to comply with the no annual limit on essential health benefits and preventive care without cost sharing provisions of the Affordable Care Act (ACA), the IRS took the time to specify the potential penalty for failing to comply; namely, that the employer is subject to a $100 per day per employee per provision penalty, which could be as much as $36,500 per year per employee per provision.

Clearly, the IRS is aware that some employers and brokers have continued to question whether the IRS’ September guidance applied to arrangements to solely reimburse or pay the premiums pre-tax for individual health insurance plans. Through the most recent guidance, the IRS made it clear that these arrangements do not comply with the ACA and subject the employer to severe potential penalties for continuing the arrangement.

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