Employer Payment Plans – What All Small Businesses Need to Know
By: Eric Stromness (Zane Benefits) July 2015
Under the Affordable Care Act, employers who continue to use Employer Payment Plans are at risk of being fined a $100 dollars per day, per employee starting July 1, 2015.
As a small employer who wants to help employees with their health insurance costs, you’ve likely asked, “What is an Employer Payment Plan? What are the fines? And, is there another way to help employees with the cost of health insurance?”
What is an Employer Payment Plan?
According to the IRS, an Employer Payment Plan is an arrangement where an employer reimburses an employee directly for individual health insurance policies or directly pays for employees’ premiums.
Since an employer is giving money towards health insurance cost, the IRS has defined this type of arrangement as a group health plan.
As a group health plan, an Employer Payment Plan must meet the new Affordable Care Act “Market Reforms.”
What are the ACA Market Reforms?
As we discussed yesterday, the Affordable Care Act (ACA) introduced new “Market Reforms” that apply to all group health plans, including certain medical reimbursement plans.
The Market Reforms require that all group health plans do not place an annual or lifetime limit on essential health benefits (PHS Act 2711), and cover basic preventive care without cost sharing (PHS Act 2713).
By definition, Employer Payment Plans do not meet the Market Reform requirements because they do not meet the preventive care requirements.
How Can We Help with Employees’ Health Insurance Costs?
The good news is there’s another solution, besides an Employer Payment Plan, that allows a business to reimburse employees for individual health insurance – and avoid costly penalties. An employer can set up a Section 105 Healthcare Reimbursement Plan (HRP), such as ZaneHealth.
A Section 105 HRP is designed to follow the Market Reform rules. As such, it is structured to only reimburse employees for individual health insurance premiums and basic preventive care as required by the Market Reforms.
Using this type of plan, employers can help employees with individual health insurance costs and avoid the costly fines.
How do We Make the Switch?
To switch to a Section 105 HRP:
– Cancel the Employer Payment Plan (if there is a formal plan in place).
– Set up the required Section 105 Plan Documents.
– Ensure the plan is designed in compliance with the new Market Reforms, including the annual limit and preventive care rules outlined in IRS Notice 2013-54. Also ensure compliance with IRS, HIPAA, and ERISA rules.
– Educate and onboard employees.
Due to the complexity of the new Market Reforms and federal regulations, many employers prefer to contract with a third party (such as ZaneHealth) to help ensure compliance and to avoid unnecessary tax penalties.
Conclusion
As of July 1, 2015, employers using Employer Payment Plans and other non-compliant reimbursement arrangements are subject to fines. Avoiding the fees, however, is simple. Employers can adopt a formal plan – such as a Section 105 Health Reimbursement Plan – to reimburse individual health insurance premiums and stay compliant with the ACA Market Reforms.
