Employer Payment Plans

What is an Employer Payment Plan?

An employer payment plan is defined as an arrangement under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy or arrangements under which the employer uses its funds to directly pay the premium for an individual health insurance policy covering the employee.

Employer Payment Plans Do Not Comply With the ACA

It does not matter if an employer provides reimbursements or payments for individual health insurance policies on a pre-tax or after-tax basis:

  • An arrangement under which an employer provides reimbursements or payments that are dedicated to providing medical care, such as cash reimbursements for the purchase of an individual market policy, is itself a group health plan.
  • Accordingly, the arrangement is subject to the ACA market reforms applicable to group health plans without regard to whether the employer treats the money as pre-tax or post-tax to the employee, and cannot be “integrated” with individual market policies to satisfy the market reforms.

Note: An exception exists for qualified small employer HRAs.

Penalties

Employer payment plans may be subject to a $100 per day excise tax per applicable employee (which is $36,500 per year, per employee) under the federal tax code.