VOL. XIX, ISSUE 6 DECEMBER 2014
Many of the provisions of the Affordable Care Act (ACA) are causing employers to review long standing employee benefit practices. Of concern to some employers is that some employees – or members of their family – may find that they would get a subsidy in the individual exchange but for the fact that the employer offers a health plan to employees.
Reflecting this concern, a number of creative plans have come to the insurance market attempting to address this issue. This issue of Legislative Review provides an overview of this concern and the most recent guidance for employers.
I’m always reminding brokers that employers offered health plans long before the ACA because it made sense for them to do so. Most of the reasons that employers offered coverage remain today.
Some employers fear that employees will want to forego employer coverage to chase the subsidies in the individual market. Employers need to remind employees that there are significant subsidies through their employer-provided coverage. As importantly, the employer has taken the time to work with a licensed insurance professional to find a plan that meets the needs and the budgets of the employees and the employer. And, should the employees have questions or concerns, the employer along with the broker serve as an advocate for the employee.
Happy Holidays and a safe and happy New Year!
Employers have long offered health plans as an employee benefit for employees and their families, often with sizeable employer contributions toward the cost of the premium. Employers offered coverage as a part of the social contract between employers and employees and as a means to attract and retain key employees.
Employers and employees both enjoy sizeable tax benefits when an employer offers a health plan.
The plans provided by the employer are tax-free to the employee and a deduction for the employer. Also, most employers allow for pre-tax payment of employee contributions to premiums. This reduces the costs to employees for their premium contributions and reduces an employer’s payroll tax and other taxes based on payroll.
To date, nothing in the ACA has changed these facts.
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Sincerely yours,
Karen Knippen, RHU, REBC, CLTC
Senior Vice President
E UCLID M ANAGERS
® has been serving the independent agent since
1976 with a portfolio of group health, professional liability and individual health, life, annuity and long-term care products. We proudly represent UnitedHealthcare, Delta Dental of Illinois,
MetLife and UnitedHealthOne Individual. We encourage your feedback and suggestions. Please call your E UCLID
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Marketing Representative or Marcy Graefen at (630) 238-2915 for more information. Outside Chicagoland, call (800) 345-7868.
Website: www.euclidmanagers.com
The information contained in this publication is intended for the general information of our clients. It should not be construed as legal advice or legal opinion regarding any specific or factual situation.

What has changed is the ACA’s promise of subsidies for individuals and their families who earn between
100% and 400% of the Federal Poverty Level.
The subsidies are actually advanced premium tax credits intended to make health coverage more affordable for those individuals who don’t have an employer based plan or one that is affordable.
The result is that some employees, particularly those lower wage earners, may qualify for a subsidy for a health plan that exceeds the generous employer contributions and tax benefits of the employer-based plan. However, as long as the employer offers a plan that meets minimum requirements, the employee and family members are, generally, barred from receiving the premium subsidies.
A number of vendors have developed plans which were designed to keep the best of both the traditional employer-based health plan while allowing employees
– or their dependents – to obtain the federal subsidy.
As these plans were scrutinized the Department of
Labor and the IRS issued guidance intended to foreclose these creative approaches.
The Department of Labor issued guidance in notice
2013-03. The IRS issued guidance in notice 2013-54.
Notwithstanding this guidance, variations on these creative health coverage arrangements continued to attract employers. There were other FAQs issued regarding employer health care arrangements on
May 13, 2014 as well.
Some employers looked to other creative means to both help employees afford insurance and ensure that employees purchased coverage. Their approach was to consider means to reimburse employees in some fashion for individually purchased coverage, whether post-tax or pre-tax.
The Departments of Labor, Health and Human Services and the Treasury jointly issued FAQs Part XXII in
November 2014 in an attempt to close the door on these creative – but problematic – approaches to coverage. The new FAQs restate that health reimbursement arrangements (HRAs) and other employer payment plans are considered group health plans which are subject to the group market reform provisions of the
ACA. The guidance notes that employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms.
The guidance provides three (3) FAQs to clarify the issues at hand. They are explained in digest form below.
Q1: My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the market reforms?
No. If the employer uses an arrangement that provides cash reimbursement for the purchase of an individual market policy, the employer’s payment arrangement is part of a plan, fund, or other arrangement established or maintained for the purpose of providing medical care to
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employees, without regard to whether the employer treats the money as pre-tax or post-tax to the employee.
In short, this answers the question of how or whether an employer can construct a plan that reimburses an employee for the purchase of individual coverage.
Any time that an employer becomes involved in this manner it is likely – and this answer is much more emphatic – that the employer creates an ERISA plan that is then subject to all of the market reforms as well as ERISA.
Q2: My employer offers employees with high claims risk a choice between enrollment in its standard group health plan or cash. Does this comply with the market reforms?
No, cash-or-coverage arrangements offered only to employees with a high claims risk are not permissible benign discrimination. Accordingly, such arrangements will violate the nondiscrimination provisions, regardless of whether
(1) the cash payment is treated by the employer as pre-tax or post-tax to the employee, (2) the employer is involved in the selection or purchase of any individual market product, or (3) the employee obtains any individual health insurance.
Employers cannot discriminate based on health factors in the offer of coverage. Moreover, the guidance adds that any such choice between coverage and cash requires a cafeteria plan. This arrangement would likely not meet the Section 125 cafeteria plan nondiscrimination requirements.
Q3: A vendor markets a product to employers claiming that employers can cancel their group policies, set up a Code section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies, and allow eligible employees to access the premium tax credits for Marketplace coverage. Is this permissible?
No. The Departments have been informed that some vendors are marketing such products.
However, these arrangements are problematic for several reasons. First, the arrangements described in this Q3 are themselves group health plans and, therefore, employees participating in such arrangements are ineligible for premium tax credits (or cost-sharing reductions) for Marketplace coverage. The mere fact that the employer does not get involved with an employee’s individual selection or purchase of an individual health insurance policy does not prevent the arrangement from being a group health plan.
Employers should revisit the reasons that they have been offering a health plan to employees in years past.
If the reasons that they offered coverage are still valid, then the employer’s decision on how to proceed may be clearer.
Employees should be reminded that the coverage that they receive through their employer is also subsidized coverage.
In many cases, the employer contribution and the payment of employee contributions on a pre-tax basis may far exceed the subsidies in the individual exchange.
www.euclidmanagers.com
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