Employers with fewer than 50 employees may find that the Affordable Care Act (ACA), or Obamacare, has made illegal medical reimbursement accounts they’ve long provided for their employees.
Beginning Jan. 1, 2014 new ACA-mandated requirements, restrictions and responsibilities have fallen on employers, and it takes Health Reimbursement Accounts (HRA) off the table for some percentage of employers and employees.
If you’re an employer that has made use of Section 105 medical reimbursement plans and aren’t sure where your program stands, please be advised that penalties can reach up to $36,500 per year for doing what you may have done in the past to safeguard your employees.
The principal ACA provisions driving these changes are that employer-provided coverage can no longer put a total dollar amount on certain health benefits and no cost can be applied to preventive healthcare measures regardless of the costs these government-imposed mandates put on employers.
As IRS Notice 2013-54 says:
an employer-sponsored HRA cannot be integrated with individual market coverage or with individual policies provided under an employer payment plan, and, therefore, an HRA used to purchase coverage on the individual market under these arrangements will fail to comply with the annual dollar limit prohibition.
Also no longer legal under IRS Notice 2013-54 is reimbursing employees for their health insurance premiums. According to the IRS, doing so imposes an annual limit and the employer reimbursement can’t be integrated with an individual health insurance policy purchased using this method.
In short, for doing what you’ve done in the past, you’re breaking the law in the present and making yourself susceptible to financial penalties.
One way exists for an employer to avoid IRS Notice 2013-54 and ACA restrictions and still receive tax-free reimbursement for reimbursement plans (105): have a single employee. However, for non-discrimination purposes, all employees must participate. As a result, this option is limited only to employers with one full-time employee.
Realistically, it’s a challenge for anyone to navigate through the twists and turns of these requirements and restrictions without involving experienced and knowledgeable financial minds.
The rules change almost daily, so stay tuned.