For nearly two years now, the IRS has been explaining that employers are no longer permitted to reimburse employees for premiums the employees paid for individual health insurance coverage.

Despite the IRS’s efforts, these arrangements continue to be marketed to employers (perhaps under a mistaken belief that prior guidance did not apply to arrangements that reimbursed only individual insurance premiums). Regardless of the reason, the IRS has again clarified that an arrangement that reimburses employees for health insurance premiums is a group health plan subject to the Affordable Care Act (ACA) mandates. 

As we previously reported, these employer payment plans generally do not meet the requirements of ACA. Employers who maintain these non-compliant plans are liable for a federal excise tax of $100 per day, per employee. That’s $36,500 per employee, per year! 

However, there is good news for small employers—the IRS just provided short-term relief to any employer who is not an “applicable large employer”. “Applicable large employer” is defined in the ACA, and generally means an employer with at least 50 full-time employees (including full-time equivalents). These small employers will not be liable for the excise tax merely because they offer an employer payment plan for any period before July 1, 2015. After June 30, 2015, even small employers will be liable for the excise tax.

If you have an arrangement that conditions the receipt of cash or any benefit on employees electing other health insurance, you should review that arrangement to ensure it does not run afoul of the ACA requirements.