Health Insurance Exchange — Reimbursing Employee Premiums

Businesses choosing not to provide a health insurance plan directly to employees must provide reimbursement to employees for the premiums they pay for a qualified health insurance plan that they must acquire through either the health insurance exchange or independently. The IRS has posted FAQs that address the consequences of an employer reimbursing its employees for these premiums.

Proposed by some as an inexpensive way to shift the expense of providing employee health care away from the employer (“dumping strategy”), requiring only that the employer provide its employees with what was assumed would be tax free cash contribution to their employee towards paying their health-insurance premiums. The IRS’ guidance concluded that,  while under such arrangements an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation, these arrangements are considered to be group health plans subject to the market reforms provisions under the Affordable Care Act (ACA) and the penalty for failure to meet those provisions.

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