Fall 2015 Issue of Horizons

Can an employer reimburse an employee for an individual health plan? No, an employer (whether large or small) cannot reimburse an employee for an individual health plan. While small employers are not subject to penalties associated with non-compliance of the employer mandate, they are subject to a penalty if they reimburse employees for individual non- group health plans. According to a regulation released by the IRS and guidance issued by the Department of Labor (DOL), the Federal Government put this rule in place to try to encourage small employers to offer group health plans and use the SHOP Marketplace (Small Business Health Options Program) to get lower costs on group plans and claim tax credits. Additionally, it has been previously thought that employers could increase compensation and do everything on a pre-tax basis. Now the IRS and DOL has said it does not matter whether such reimbursement is pre-tax or post-tax; neither is allowed. However, if an employer simply increases an employee’s compensation (all of which is subject to federal taxes and all other payroll-related taxes) but does not condition the increase on the employee purchasing health coverage, this increase is allowed as it does not constitute a group health plan. While an increase in employee compensation with no condition to purchase health coverage is permitted, reimbursement arrangements are not allowed and employers who offer such arrangements will be subject to a steep excise tax of $100 per day per employee per violation, up to $36,500 a year per employee. These penalties took effect July 1, 2015. When does the employer mandate go into effect? The Employer Sh a red Responsibility provisions went into effect on January 1, 2015 for large employers who employed 100 or more full-time equivalent employees, or FTEEs, on average during the prior calendar year.

Employers who employed 50-99 full-time employees, or FTEEs, on average during the prior calendar year have until January 1, 2016 to comply with the employer mandate. What are the penalties associated with non- compliance of the employer mandate and when do these penalties begin? In 2015, employers who employed 100 or more full-time employees, or FTEEs, on average during the prior calendar year will be subject to a penalty for any month they fail to provide health care coverage to more than 70% of their full-time employees and their dependents and at least one full-time employee receives a premium tax credit to help them afford health insurance purchased through the Health Insurance Marketplace. The penalty for this non-compliance will be one-twelfth of $2,000, or $166.67 per month, for each full-time employee, less the first 80 employees in 2015. Additionally, another penalty applies if an employer offers employer-sponsored minimum value coverage to full-time employees and their dependents, but the employee contribution is deemed unaffordable and at least one full-time employee received a premium tax credit to help them afford health insurance purchased through the Health Insurance Marketplace.

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