Summary Chart of Disallowed Pay or Play Tactics

With the January 1, 2015 employer shared responsibility deadline fast approaching, the three government agencies charged with ACA compliance (IRS, DOL and HHS) have provided recent guidance on several strategies or tactics that have been marketed to applicable large employers as legitimate ways to reduce their coverage costs and exposure to shared responsibility penalty taxes (assessable payments).   Employer reimbursement of individual health insurance premiums is a common but not universal feature of these arrangements.  The Internal Revenue Service ruled out pre-tax reimbursement of individual health premiums in Notice 2013-54, but more recent guidance in ACA FAQ XXII and in IRS Notice 2014-69 expands the prohibition to include after-tax individual premium reimbursements, as well as other shared responsibility cost reduction strategies.  The chart attached below summarizes:

  • the disallowed strategies;
  • the reasons why they were disallowed;
  • the penalties that may apply to applicable large employers that persist in pursuing these strategies; and
  • other relevant facts and concerns.

Disallowed Tactic Chart

As with all content provided on this blog, the chart is meant to serve as a general summary of legal developments and the information it contains should not be applied to any particular factual situation without first consulting experienced tax or benefits counsel.

2 Comments

Filed under Affordable Care Act, Benefit Plan Design, Cafeteria Plans, Employer Shared Responsibility, ERISA, Flex Plans, Health Care Reform, HIPAA and HITECH, PPACA

2 responses to “Summary Chart of Disallowed Pay or Play Tactics

  1. Jim DiGuiseppe

    Would an employer be able to offer an optional “buy-out” to a COBRA participant if employer treats COBRA participator as non-employee? For instance $20,000 cash payment to drop COBRA and move to other coverage (exchange or otherwise?)

    • That could pose Medicare Secondary Payer Act problems if the employee is Medicare eligible and the employer has 20 or more employees. If this approach were taken the employer should just structure it as severance pay without expressly linking to COBRA coverage. The employee should qualify for premium tax credits (presuming their pay is within 400% of FPL, severance pay included) because COBRA is MEC only if elected. Don’t quote me on any of this, though.

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