DOL, IRS and HHS have
released FAQs about Affordable Care Act ("ACA")
Implementation XXII ("FAQs XXII"). FAQs XXII provide
additional guidance to employers on the reimbursement of employees'
individual health insurance premiums. FAQs XXII make it clear that
the Agencies believe that ACA's market reforms prevent any
arrangement pursuant to which an employer provides cash
reimbursements to employees for the purchase of an individual market
policy, regardless of whether the reimbursement is paid on a pre- or
Agencies have previously issued guidance regarding the status of
various reimbursement arrangements under ACA. This guidance provided
that employer premium reimbursement arrangements, through HRAs or
other employer payment programs, are group health plans that must
comply with ACA's group market reforms, including the prohibition on
annual and lifetime dollar limits on essential health benefits and
the preventive care coverage requirement.
Previous guidance clarified
that HRAs will not violate these market reform provisions when
integrated with a group health plan that complies with such
provisions. However, premium reimbursement arrangements cannot be
integrated with individual market policies to satisfy the market reforms,
and such arrangements may be subject to penalties, including excise
taxes under Internal Revenue Code ("Code") Section 4980D.
FAQs XXII. In
FAQs XXII, the Agencies confirm that if an employer sponsors an
arrangement that provides cash reimbursement for the purchase of an
individual policy, the employer's payment arrangement is part of a
program maintained for the purpose of providing medical care to
employees. Thus, the arrangement is a group health plan that is
subject to the group market reform provisions of the ACA. These
arrangements cannot be integrated with individual market policies to
satisfy market reforms, and therefore violate ACA's group market
reform provisions. The Agencies have now stated that this rationale
applies to these arrangements regardless of whether the reimbursement
is made on a pre-tax, or after-tax, basis.
The Agencies next address
the situation where an employer offers, but to only employees with
high claims risk, a choice between enrolling in the employer's
standard group health plan and receiving a cash opt-out bonus.
Because this offer is not made to all employees, the guidance
explains that such an arrangement violates HIPAA's prohibition
against discrimination based on health factors.
Finally, the Agencies
address arrangements where a vendor markets a product to employers
claiming that employers can: (i) cancel their group policies, (ii)
set up a Code Section 105 reimbursement plan that works with health
insurance brokers or agents to help employees select individual
market policies, and (iii) allow eligible employees to access premium
tax credits to pay for marketplace coverage. According to FAQs XXII,
these arrangements are impermissible and problematic for several
reasons, including the fact that the arrangements themselves are
group health plans, thereby disqualifying participating employees
from premium tax credit eligibility.
Action Steps for Employers. In
light of this new guidance and previous guidance published by the
Agencies, employers sponsoring or contemplating engaging in these
arrangements are advised to contact qualified employee benefits
counsel for assistance in understanding the potential concerns raised
by involvement in these practices.