The Internal Revenue Service (IRS) has just released a new Question and Answer statement entitled Employer Health Care Arrangements. In this statement, the IRS has reiterated a declaration made in IRS Notice 2013-54 (PDF): If an employer does not establish a health insurance plan, they cannot reimburse employees for premiums they pay for health insurance through a qualified health plan acquired either in or out of the Marketplace. According to the IRS, “such arrangements are described as employer payment plans. An employer payment plan…generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation.”

Although this declaration isn’t new, the following enforcement language included in this new statement has alarmed experts: “…such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.” According to a bulletin recently issued by IMA, Inc., this language strikes a radically different tone from previous statements issued by regulators going back to 2010¬†–¬†statements that indicated they were willing to “assist” employers rather than take enforcement action.

It is advisable that employers take this warning from the IRS seriously; IMA believes that “employers considering ways to reimburse employees for individual health insurance premiums should seek legal counsel.”

IRS Question and Answer Statement: “Employer Health Care Arrangements”
IRS Notice 2013-54 (PDF)