March 20, 2015
IRS Guidance Provides Limited Transition Relief
As part of Notice 2015-7, the IRS issued guidance on Feb. 18 providing limited transition relief for certain premium reimbursement plans, including:
- Individual market premium reimbursement arrangements (PRAs), also known as “employer payment plans” as defined in Notice 2013-54;
- Medicare premium reimbursement arrangements; and,
- Reimbursement arrangements supplementing Tricare.
The relief does not extend to stand-alone HRAs or other arrangements to reimburse employees for medical expenses other than insurance premiums, which remain prohibited as outlined in IRS Notice 2013-54.
In summary, the guidance provides the following limited relief:
- Employers who did not qualify as “applicable large employers” (ALE) for all of 2014, and employers who do not qualify as an ALE from Jan. 1 through June 30, 2015, will NOT be subject to excise taxes under Section 4980D for failing to satisfy the health insurance market reforms solely because the employer maintained an employer payment plan or a plan that reimbursed Medicare Part A, B, or D premiums.
IMPORTANT: This relief does not extend to stand-alone HRAs or medical expense reimbursement arrangements that reimburse for anything other than premiums. It also does not apply to ALEs that are otherwise exempt from excise taxes in 2015 because they have between 50-99 participants.
- Through the end of 2015 (or longer as set forth in subsequent guidance), an arrangement that reimburses the individual market premiums for a more than 2% shareholder of a Subchapter S corporation will not be subject to Section 4980D excise taxes for failure to satisfy the health insurance reforms.
IMPORTANT: This relief does not apply to non-2% shareholder employees of the Subchapter S.
- An employer may establish an employer payment plan that reimburses Medicare Part A, B, or D premiums without violating the health insurance reforms only to the extent that the following conditions are satisfied:
(i) the employer offers group health plan coverage to the employee that provides minimum value (the employee does not have to actually enroll in the group health plan for this condition to be satisfied);
(ii) the employee is actually enrolled in Medicare;
(iii) the employer payment plan is limited to employees enrolled in Medicare; and,
(iv) the employer payment plan is limited to reimbursement of Medicare premiums AND excepted benefits, including Medigap premiums.
IMPORTANT: An employer with more than 20 employees will not be able to establish such an arrangement without violating Medicare Secondary Payer (MSP) rules.
- Employers also will not run afoul of the health insurance reforms solely because they establish an arrangement for employees enrolled in Tricare that reimburses the employee’s cost share under Tricare, excepted benefits, and Tricare supplemental premiums (but not Tricare premiums), so long as:
(i) the employer offers the Tricare-enrolled employee a group health plan that provides minimum value (again, enrollment not required); and,
(ii) the reimbursement arrangement is limited to those actually enrolled in Tricare.
IMPORTANT: Tricare has coordination/secondary rules similar to those of Medicare, so an employer with more than 20 employees will not be able to establish such an arrangement without violating Tricare's secondary payment rules.
- The guidance clarifies that an unconditional increase in compensation (i.e. the money can be used for anything) accompanied by information about the Exchange/individual market does not, in and of itself, constitute an employer payment plan (assuming, of course, that there is no other “endorsement”); however, taxing payments/reimbursements for individual market coverage does constitute an employer payment plan.
We encourage you to read IRS Notice 2015-7 in its entirety.