Reimburse Individual Market Premiums Through Payroll Processing?

With the 2015 ACA employer mandate fast approaching, we are starting to receive more questions about payroll processing and  deductions relating to healthcare and medical coverage.  Here is a recent question and answer regarding employer reimbursement: 

No Reimbursement through Payroll ProcessingQuestion:  Can an employer use payroll processing to reimburse its employees for premiums on a pre-tax basis for purchasing individual market medical coverage?

Answer: NO.

Payroll Processing Reimbursements Restrictions

In IRS Notice 2013-54  & Technical Release 2013-3, the IRS and Department Of Labor (DOL) prohibit the reimbursement of premiums for individual medical policies from health reimbursement arrangements and premium only plans.

The IRS and DOL indicate that such arrangements that help employees to pay for individual health insurance policies on a tax-free basis fail to satisfy the Affordable Care Act’s annual dollar limit and preventive health services “market reform” provisions.

Any employer payment plan (defined as any arrangement that facilitates the direct or indirect payment of individual market coverage) will not meet these mandates unless it meets the rules pertaining to participation in a group health plan.

Some Payroll Processing Arrangements Acceptable

It does not include any arrangement whereby employees may choose between cash or an after-tax amount to be applied toward health coverage, including forwarding post-tax payroll deduction to the insurer, as long as the arrangement satisfies the voluntary plan safe harbor under the DOL regulations.

The reimbursement of premiums for certain other individual coverages are exempt from these requirements.  These include premiums for:

  • Retiree coverage
  • Exempted benefits (dental and vision)
  • Coverages that meet the voluntary benefits safe harbor

On May 13, 2014,  the IRS issued Q&A guidance restating the conclusion in Notice 2013-54, that an employer is considered to establish a type of group health plan, called an “employer payment plan,” if it reimburses employees’ premiums for individual health insurance policies.

PayVision Online has a wealth of resources to help businesses through the ACA challenges. We know your employees payroll is important and we keep updated on factors that can affect your payroll processing. Call us at 214-442-5888 to learn more.