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Businesses Providing Health Reimbursement Plans, Take Note!

by
Lee Reams II
on
7/6/2015
Businesses Providing Health Reimbursement Plans, Take Note!

If you are a large employer, you may have made the decision to provide your employees with a health reimbursement plan rather than a group insurance plan. Many businesses made this decision, relying upon the fact that the severe penalties that can be imposed for their decision would not be imposed prior to June 30th, 2015. That relief date has now passed, and that means that the IRS may begin issuing penalties to companies offering health reimbursement plans, with the fines totaling as much as $100 per day per employee. If you have not yet made other arrangements, it is time to do so.

As part of the rollout of the Affordable Care Act, employers with one hundred or more full time employees were required to start offering health insurance coverage in 2015, while those with fifty or more full-time employees have to begin in 2016. Companies that fail to do so must pay the large employer health coverage excise tax as a penalty. Smaller companies that have fewer than fifty full-time employees do not have this requirement, though those that do may get the benefit of the small business health insurance credit.

The reimbursement plans that are leading to penalties being imposed have previously been offered by employers who had chosen the option because it represented a smaller expense to reimburse employees for what they paid for their own insurance. Doing so also had the advantage of eliminating the administrative costs that often accompany the purchase of a group insurance plan. But under the rules of the Affordable Care Act (ACA), there are very specific requirements that this type of arrangement must meet in order to be in compliance with the definition of a group health plan. Most analysts believe that the health reimbursement plans being offered are unlikely to qualify. The reason for this is that the ACA prohibits having an annual dollar limit prohibition, and employer payment plans generally do have annual limits defined by the cost of the coverage purchased by the employee. The inability to integrate the two has made it likely that these plans will be subject to the previously referenced hefty fines.

In the interest of making sure that small employers were offered ample time and notice of the penalties that would be assessed, in February of 2015 the IRS published Notice 2015-17, which offered relief from the $100 per day per employee penalties that had previously been in place under Notice 2013-54. The February notice indicated that relief from the penalty would be in place for employers with fifty or more employers for all of 2014 and the first half of 2015. It also notified S corporations that relief would continue until further notice for those that pay or reimburse premiums for two percent shareholders for individual health insurance coverage.

As the first half of 2015 has passed, those who have continued reimbursing employees for medical and relying upon the small employer relief need to take action in order to avoid having to pay $36,500 per year, per employee, for their failure to comply. This punitive penalty, which could easily bankrupt the small businesses that it would be assessed against, stands in stark contrast to the $2,000 per employee annual penalty that is levied against large employers that do not provide their full time employees with insurance. Many find this difficult to understand, particularly because the smaller employer who makes the effort to provide employees with insurance by reimbursing them for their costs pays a much higher penalty than the large employer that chooses to forego providing insurance entirely, and the same penalty applies to employers that have fifty or fewer full time employees, and who have no requirement to provide insurance. If they offer a health reimbursement plan, the penalty applies.

There is talk about Congress addressing the problem and amending the rules, but employers that decide to wait to see if that happens risk having to pay the penalty. Still, options exist, and Zane Benefits has indicated that they have created a reimbursement plan that offers a solution. Experts who have reviewed their plan are not all in agreement as to whether it is in compliance. If you are an employer that has been offering a medical reimbursement plan, it is important that you protect yourself and understand the ramifications of your current plan.

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Lee Reams II

Lee Reams II

CEO

I am a tax and business news junkie who has spent the last 20 years developing and executing "best in class" word-of-mouth marketing campaigns for tax and accounting professionals. With TaxBuzz and CountingWorks we have taken that same commitment to quality content directly to the consumer. Keeping you up-to-date with the latest tax law changes, business growth tips and planning strategies to help you reach your best financial outcome.

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