On November 6th, 2014, the Department of Labor (DOL) posted a new set of frequently asked questions (FAQs) reconfirming that Premium Reimbursement Arrangements are group health plans. The FAQs also reiterate the positions outlined in Technical Release 2013-03 from 2013 and further emphasize the importance of ensuring health insurance reimbursement programs comply with Public Health Service (PHS) Act Sections 2711 and 2713 (referred to in the FAQs as the “Market Reforms”).
Can an Employer Reimburse Employees for Health Insurance Premiums?
Yes. However, care must be taken to design a Premium Reimbursement Arrangement in compliance with applicable group health plan rules, including the Market Reforms.
What Do the FAQs Mean for Premium Reimbursement Arrangements?
The FAQs confirm that Premium Reimbursement Arrangements (regardless of whether the reimbursements are made on a pre-tax or post-tax basis) are group health plans subject to the Market Reforms. For employers wishing to reimburse employees for health insurance premiums, this underscores the importance of ensuring the Premium Reimbursement Arrangement is designed and administered in compliance with the Market Reforms and other applicable group health plan rules (such as Plan Documents and Summary Plan Descriptions).
How Can Premium Reimbursement Arrangements Comply With the Market Reforms?
In order to comply with the Market Reforms, a Premium Reimbursement Arrangement must be structured to comply with PHS Act Section 2711 annual limit rules and PHS Act Section 2713 preventive care rules.
PHS Act Section 2711 requires group health plans (including Premium Reimbursement Arrangements) not to place annual or lifetime limits on “essential health benefits.”
PHS Act Section 2713 requires group health plans (including Premium Reimbursement Arrangements) to cover basic preventive care services without cost-sharing.
It is important to note that PHS Act Section 2711 allows group health plans (including Premium Reimbursement Arrangements) to place annual limits on benefits that are not essential health benefits. Since health insurance premiums are not essential health benefits, group health plans (including Premium Reimbursement Arrangements) may place a “premium-specific” annual limit on premium reimbursements.
However, group health plans (including Premium Reimbursement Arrangements) may not place an annual limit on the basic preventive care expenses required by PHS Act Section 2713 because preventive care expenses are considered essential health benefits.
As discussed previously, one way to structure a compliant Premium Reimbursement Arrangement is to design the arrangement to reimburse employees for:
- Health insurance premiums up to a specified monthly healthcare allowance, and
- Preventive care as required by PHS Act Section 2713.
Failure to comply with these Market Reforms could expose an employer to excise taxes under IRC Section 4980D of up to $100 per day if the failure is not corrected (Note: this tax is limited to 10% of the amount paid under the plan if the failure is due to reasonable cause, and the tax can be avoided in entirety if the employer can show that they did not know that the failure existed and it is corrected within 30 days).
How Do the FAQs Affect Premium Reimbursement Arrangements and Premium Tax Credits?
The FAQs reiterate that if a Premium Reimbursement Arrangement is not properly designed and is deemed to be "minimum essential coverage," then a lower-income employee may need to choose between participating in the Premium Reimbursement Arrangement and receiving the premium tax credit.
Can an Employee Receive a Premium Tax Credit and Reimbursement for the Non-Subsidized Portion of the Health Insurance Plan?
Yes. If the Premium Reimbursement Arrangement is structured so that it does not meet the definition of an “eligible employer-sponsored plan” in Internal Revenue Code (IRC) Section 5000A, then employees may still receive a premium tax credit (if they are otherwise eligible).
What is an Eligible Employer-Sponsored Plan?
According to IRC Section 5000A(f)(2):
The term “eligible employer-sponsored plan” means, with respect to any employee, a group health plan or group health insurance coverage offered by an employer to the employee which is—
(A) a governmental plan (within the meaning of section 2791(d)(8) of the Public Health Service Act), or
(B) any other plan or coverage offered in the small or large group market within a State.
Such term shall include a grandfathered health plan described in paragraph (1)(D) offered in a group market.
Source: IRC Section 5000A
If the Premium Reimbursement Arrangement is designed so that it does not meet the definition of an eligible employer-sponsored plan, employees may participate in the Premium Reimbursement Arrangement and may simultaneously receive a premium tax credit (if they are otherwise eligible).
It is important to note that if a Premium Reimbursement Arrangement does not meet the definition of an eligible employer-sponsored plan, it will not satisfy the employer shared responsibility provision (i.e. employer mandate) of the Affordable Care Act. This is an important trade-off that employers with 50 or more employees should consider.
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