Howard, LLP

Howard Tax Insights: Medical Reimbursement Plans and the Affordable Care Act

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Dallas, Texas, June 2015 – Time is quickly running out to modify or remove Medical Reimbursement Plans that are not in compliance with the Affordable Care Act (ACA).  Medical Reimbursement Plans, Health Reimbursement Arrangements (HRA), and other cafeteria plans designed to assist employees with the cost of health insurance premiums or other medical costs all fall under the rules provided by the IRS in Notice 2013-54.  These types of plans are referred to as Employer Payment Plans by the IRS.

Employer Payment Plans typically set a cap on the dollar amount that will be reimbursed by the employer.  This could be a set amount per month to reimburse for employee paid insurance premiums, or a cap on the amount of out-of-pocket expenses that would be covered under the plan.

Under the ACA, plans are prohibited from setting a dollar limit on essential health benefits and no-cost preventative health services.  Except in very limited situations, these Employer Payment Plans do not satisfy this requirement, and are thus not qualified plans.

The ACA includes harsh penalties on employers offering non-qualified plans.  This includes an excise tax of $100 per day per employee.

Employers with fewer than 50 full time or full time equivalent employees could be eligible for relief from penalties, provided they transition away from Employer Payment Plans prior to June 30, 2015.

If your organization has a Medical Reimbursement Plan or other Employer Payment Plan, contact the Howard team as soon as possible to discuss whether a change will be needed in order to comply with the strict rules of the Affordable Care Act.