Under the Affordable Care Act, employers using an Employer Payment Plan face penalties of up to $100 per day, per employee.
Many business owners and insurance advisors are, however, unaware there is a reimbursement plan that meets the requirements of the Affordable Care Act and still allows for reimbursement of individual health insurance. It is called a Healthcare Reimbursement Plan (HRP) and it is different than an Employer Payment Plan.
How? Why? Let’s take a look.
What is an Employer Payment Plan?
In Notice 2013-54, the IRS defines an Employer Payment Plan as an arrangement where:
An employer reimburses an employee directly for individual health insurance policies, or
An employer directly pays for employees’ premiums.
Reimbursements from Employer Payment Plans are tax-free (i.e. excludable from income) under Section 106 of the Internal Revenue Code.
Why isn’t an Employer Payment Plan compliant? To summarize, Employer Payment Plans do not cover basic preventive care services as required by the ACA Market Reforms. Because of this, employers using Employer Payment Plans are now subject to the $100 per day excise tax.
What is a Healthcare Reimbursement Plan?
A Healthcare Reimbursement Plan (HRP) is a type of Section 105 Medical Reimbursement Plan designed for individual health insurance reimbursement. An HRP is designed to comply with the ACA Market Reforms.
Why is an HRP compliant? Under current regulations, tax-free reimbursement of individual health insurance is still allowed through a Section 105 Plan - nothing in the current tax code has changed. However, the HRP must be structured to meet the requirements of the Market Reforms.
To comply with the Market Reforms, the HRP is structured to only reimburse employees for:
Individual health insurance premiums, and
Basic preventive care services as required by PHS Act 2713.
How is an Employer Payment Plan Different than an HRP?
On the surface, an Employer Payment Plan and HRP sound similar; they are both ways to help employees with the cost of their individual health insurance.
There are, however, three key differences:
With an HRP, the employer makes contributions to the plan - not directly to individual policies and not directly to employees. With an HRP, employees use the plan to be reimbursed for eligible healthcare expenses. With an Employer Payment Plan, the employer is generally making direct payments or reimbursements.
An HRP complies with the Market Reforms. An HRP does not place an annual limit on essential health benefits and covers preventive care services without cost-sharing. An Employer Payment Plan does not cover preventive care services.
An HRP is a formal health plan with legal plan documents. As a group health plan, an HRP meets the requirements of the Market Reforms, as well as other applicable federal requirements. An Employer Payment Plan is also considered a group health plan but does not meet the requirements of the Market Reforms.
As employers continue to adopt individual health insurance reimbursement, it is important to understand an Employer Payment Plan is different than an HRP. The bottom line? As of July 1, 2015, employers using Employer Payment Plans are subject to fees. Employers using a compliant HRP (such as ZaneHealth) are not subject to fees.
To transition to an HRP to avoid costly fees, contact a Reimbursement Software Provider to help you set up the plan and onboard employees.
More Resources on Understanding Employer Payment Plans and HRPs
What questions do you have about the difference between an Employer Payment Plan and a Section 105 Healthcare Reimbursement Plan (HRP)? Leave a question below.