It has come to our attention recently that employers could be penalized by the IRS for contributing to individual health plan premiums. Paying an employee to purchase individual health insurance could trigger a $100/day per employee excise tax assessable under IRS Code 4980D. The penalties for small employers will begin to be assessed after June 30, 2015 (see page 2 of IRS Notice 2015-17). Tying a pay raise to employees to buy medical insurance is also illegal (DOL Notice FAQ Q1 11/6/2014), although we feel this may be harder to prove. The IRS does provide a transition relief period to rectify this, as this interpretation has been unclear and only recently addressed. I have worked with some of you recently in re-establishing a group health plan, and if there are any concerns about this for your group, please contact us ASAP.
There are agents who will poo-poo this latest law interpretation and disagree that an employer is doing anything wrong, especially when running payments through a FSA (flexible spending account). We understand that the intention of the employer is for their employees to have health insurance; they want to contribute financially as they have in the past and continue to offer "benefits", and individual premiums in the past couple years have resulted in a savings for both the employer and employee. We agree that it sounds like a no-brainer and win-win. However, the IRS in working with the Affordable Care Act (ACA), has also noticed a mutiny of employer group health plans, which defeats the purpose of getting everyone insured, distorts the play or pay rule for employer groups over 50 employees, and therefore red flags have been raised. Serious attention is now being given to individual health insurance and how it is paid for. Some suggest that the IRS is after double dipping breaches. Whatever the motive is for cracking down, we just want you to be informed, and then it's your decision to make any changes.
This somewhat relates to Ed's article above on ERISA compliance, in that the IRS has beefed up its' forces and has an agenda to collect money. We want you to be aware of this recent climate. A colleague explained it by saying, you know all the times you jay-walked and though you knew it was illegal, you did it anyway because no one enforces that law. Rumors are that those days are gone in health care compliance...
