Post-tax health insurance premium reimbursement?

[Flyboyjohn]

Much has been written with respect to the IRS clarification that pre-tax reimbursement of individual employee health insurance premiums violates ACA and can invoke the $100/day/participant nuclear penalty.

I'm concerned that even post-tax reimbursements can be troublesome based on the following sentence in the recent Q&A:

An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation.

Consider a scenario where small employer says "I'm dropping group coverage but encouraging all employees to obtain coverage individually so I'm willing to reimburse you (on a taxable basis) up to $500/month if you prove to me you have coverage."

If I don't give them the $500 if they don't have coverage haven't I violated the "cash compensation" proviso above and IRS would consider my program an "employer payment plan" subject to penalties?

[masteff]

Could you provide a link to the Q&A in question?

[Flyboyjohn]

Sorry, don't know how to share links but search for a Q&A released May 13th using "IRS Employer Health Care Arrangements"

[masteff]

You may be like some of us who have trouble pasting into the reply window. See the solution here: http://benefitslink.com/boards/index.php?/topic/55213-cant-quote-or-paste-or-cant-edit-a-new-post-heres-how/


http://www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements

Okay, I see where you're tripping up on that. You have to go earlier in the sentence: "does not include". Everything after "an arrangement" is merely describing what is not included as an "employer payment plan". It is the "employer payment plan" that has become a violation. The IRS does add confusion with their usage of the terms "arrangement" and "arrangements".

[KED]

But don't forget with that even with after-tax contributions, such an arrangement works only if it fits under the special voluntary plans exception under ERISA. That also is in Notice 2013-54.

[Flyboyjohn]

I've found the answer to my question: even after-tax payment or reimbursement of individual premiums constitutes an "employer payment plan", violates ACA and creates draconian penalties UNLESS the same amount would have been paid in cash compensation.

[Peter Gulia]

Rather than a particular payment that turns on a particular condition, what if an employer decides individually concerning each employee (if there is no collective-bargaining unit) the salary or wages the employer offers to each?

[Flyboyjohn]

Absolutely fine, just adjustments to comp and not an "employer payment plan"