Q: Our school offers medical insurance to full-time staff. Several staff members have opted to stay on their spouses' insurance and are reimbursed, up to the cost of school provided insurance. The employees who chose this option are happy, and our school has been pleased with the significant savings as well.
However, we were informed during a recent audit that this practice is neither legal nor in compliance with the ACA. We were also told we cannot give raises to offset the cost of the insurance, if the raise is directly tied to insurance—a practice we have done for years!
What do these practices have to do with mandated employee health benefits and the ACA?
A: Although you believe that you should offer a “benefit” to employees not opting to participate in your school's health benefit plan such as paying them the cost of their would-be health insurance, the “Departments”—Labor, Treasury and Health and Human Services—strongly disagree. They have addressed employer funding of individual policies numerous times, with the latest discussion on the subject published in November 2014.
Basically, the “Departments” have stated that Premium Reimbursement Arrangements—which is what your school has been doing—cannot pay for individual premiums either on a pretax or post tax basis.
According to the "Departments, your reimbursement arrangement—consisting of a promise by your school, the employer, to reimburse medical expenses (premium) up to a certain amount—constitutes a premium payment under a group health plan. As a group health plan, this reimbursement method must follow the insurance reforms in the ACA, which include no annual limit on essential health benefits and the requirement to provide preventative care at no cost sharing. Paying only for insurance premiums violates both provisions.
Further, the guidance does not allow for employers to offer cash to a select set of employees (i.e., those taking their spouses' insurance) but not other employees (i.e., those going to the open exchange). Doing so would be in violation of the prohibition on discrimination based on one or more health factors.
That noted, this prohibition does not prevent you from offering all eligible employees who do not take employer health insurance for any reason a certain dollar amount—not the amount of their health insurance policy—in lieu of health insurance.
The offered amount should not be more than your payment for your group health insurance. Again, such an arrangement would have the appearance of forcing employees off the group health plan for a more expensive policy.
Remember, there is an excise tax if you do pay for individual health insurance policies. This tax is $100 per day per effective individual. So if you pay for 15 individual insurance policies that would be 1,500 per day. Be wary of brokers who are marketing plans that pay for individual policies—you will be penalized, not them.
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