The original guidance suggested that employers could utilize this type of reimbursement arrangement, as long as the reimbursement was not paid with pre-tax dollars. Meaning, as long as the money was provided to the employee as taxable wages, they would not be subject to a $100 per day penalty for violating the health reform law. However recent guidance now suggests otherwise.
On November 6, 2014, the Department of Labor (DOL), Health & Human Services (HHS), and the Treasury, jointly issued “Frequently Asked Questions about the Affordable Care Act Implementation (Part XXII)”. This latest round of guidance explicitly states that any payment arrangement by which the employer provides cash reimbursement to an employee for the purchase of an individual policy violates the reform provisions in the Affordable Care Act, without regard to whether the employer treats the money as pre-tax or post-tax to the employee. Accordingly, these type of premium reimbursement arrangements may subject the employer to excise taxes under Code Section 4980D, which could be substantial.
Please contact our office immediately if you have an arrangement where you offer such a reimbursement option for one or more of your employees, so that we may review your circumstances, and if necessary, discuss some possible alternatives with you.