By Dan Cook
As employers weigh their options under the Patient Protection and Affordable Care Act, it has become clear that regulators don’t intend to stand by and watch companies shed themselves of employer-sponsored health plans.
The IRS dealt a big blow to any such plans this month, giving employers that might have considered offloading their employees onto the public insurance exchanges plenty of reason to reconsider.
In its ruling, the IRS took aim at employer payment plans — programs under which employees spend their own dollars on insurance premiums and procedures, and in which employers reimburse them for the cost.
Until now, a certain reading of the PPACA
by corporate lawyers and HR professionals had led some to believe these types of reimbursement plans would represent employer contributions toward employee coverage, and thus would free them from having to provide coverage.
The general understanding was that such employers would also avoid the fine, or per covered employee payment, levied against those who failed to offer affordable coverage.
Not so fast, said the White House. “I don’t think that an employer-based system is going to be, or should be, replaced anytime soon,” President Obama recently opined, in response to a query about whether the PPACA might lead to the disintegration of employer-sponsored health coverage.
According to the law firm Wolters Kluwer, these employer payment plans fall out of line with the PPACA because they violate a prohibition on setting annual limits on per employee health care spending. The also don't square with a PPACA requirement that certain types of preventive medical services be offered with no employee co-payment.
The IRS ruling has huge implications for employers that thought they could get around offering coverage by merely paying a penalty and sending their workforce to the public exchanges.
All of this emerged this month in the form of an IRS website Q&A. The question: “What are the consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the marketplace or outside the marketplace)?”
In response, here’s what the IRS said: “Such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.”
This penalty portion of this ruling took many observers by surprise, all pretty much agreeing that it was sufficiently punitive to discourage most employers from dumping their covered workers onto the public exchanges.
“The IRS is going out of its way to keep employers in the group insurance market and to reduce the incentives for them to drop coverage,” Richard K. Lindquist, president of a Park City, Utah, firm that helps companies reimburse employee health costs told the New York Times.
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Originally published on BenefitsPro.com