Back in November of 2014, the DOL issued FAQ Part 22, which directly addresses some recent efforts by employers to reimburse employees for participation in the exchange through Code Section 105, or through some type of other arrangement. The gist of the FAQs, consistent with Notice 2013-54, was that employers could not offer employees cash to reimburse the purchase of an individual market policy. This type of arrangement would fail to comply with the market reforms and would subject the employer to a penalty.

Fortunately, some additional guidance has been issued that provides some transitional relief for employers who have been using such an arrangement. IRS Notice 2015-17 still adheres to the proposition that giving employees money to pay for coverage in the individual market or on a health insurance exchange will not be considered to be an employer plan satisfying ACA’s employer mandate. But it also gives some transitional relief that allows for some avoidance of the $100 a day penalty that these arrangements would create for employers.

Also see: Employers remain unprepared for ACA requirements

Transitional relief is available only to those who are not “applicable large employers” meaning 50 or fewer FTEs. It also applies if the arrangement is sponsored by an S-corporation for 2-percent shareholder-employees, is a Medicare premium reimbursement arrangement or a TRICARE-related health reimbursement arrangement. The stay on enforcement is in effect until June 30, 2015. After July 1, 2015, penalties may apply to a reimbursement arrangement of this nature unless the relief is extended further. So the effect is that the $100 per day excise tax will not be asserted for (and no reporting obligations will apply to) arrangements if they meet one of the 4 criteria identified above. 

Warning: this relief does not apply to stand-alone health reimbursement arrangements or other arrangements that reimburse employees for medical expenses other than insurance premiums, and employers who are applicable large employers.

By way of additional clarification, this new guidance provides that if an employer increases an employee’s compensation, but does not condition the payment of the additional compensation on the purchase of health coverage, the arrangement is not an employer payment plan that would be subject to the excise taxes described above.

So if you currently “reimburse” your employees for the cost of premiums for individual medical insurance policies, Medicare or TRICARE, make sure you meet the standards for transitional relief and be prepared to eliminate these arrangements if no additional relief is granted. If you have an arrangement that reimburses for premiums and you do not get relief, you have to look at reporting non-compliance for the first part of this year and also how to eliminate it.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at or (212) 878-7919.

The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.

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