With the requirement for large employers to offer health coverage to full-time employees quickly approaching, employers are seeking creative, cost effective options for providing benefits.
Many employers had been considering giving their employees a tax-free monetary stipend to purchase individual coverage through the Health Care Exchange. It was widely thought that paying employees a lump sum of money to buy coverage on their own, rather than providing coverage to employees directly, would be more cost effective for the employer.
A recent IRS ruling held that employers cannot reimburse employees for health insurance premiums or out of pocket health costs. In fact, a Q&A released by the IRS held that such arrangements, referred to as “employer payment plans,” will not meet a large employer’s obligation to offer health coverage. An employer that implements an employer payment plan will be subject to a $100 per day excise tax per employee—which equates to a $36,000 penalty per year, per employee.
This new guidance confirms that an employee cannot use tax-free contributions from an employer to purchase health coverage. An employer who offers to pay for an employee’s individual health policy will be subject to the $100 per day excise tax per employee, and may be subject to additional penalties for failing to offer appropriate health coverage.
