The employer mandate requiring employers to offer insurance to employees, which has been pushed back one year to 2015, is typically construed to simply mean a traditional group health plan. One common question some employers have is whether they can offer to reimburse an employee for his or her purchase of insurance on the individual health exchange.
Such an arrangement can technically be considered a health reimbursement arrangement (HRA). In summary, an HRA offers to reimburse employees for a specified amount, which can include insurance premiums as well as doctor visits and medicine. Although this would provide a simple alternative, the Public Health Service act section 2711, which references the Patient Protection and Affordable Care Act (PPACA), prohibits lifetime or annual limits. The United States Department of Labor released some frequently asked questions about the PPACA that includes HRAs for this exact type of arrangement. HRAs, which simply reimburse for insurance, fails to meet the standards of an insurance plan. This is because specifying the amount of the benefit inherently provides an annual limit. By default, this would also fail to qualify as minimum essential coverage.
If your clients are considering such an arrangement, be sure to talk to them to make them aware that if the goal is to avoid paying the penalty, such an arrangement will not qualify.
Featured inTAXPRO Weekly - July 18, 2013