As part of the NFIB Legal Center’s ongoing effort to educate small business owners on legal developments, we spend a lot of time talking to folks about new regulations. In recent years we’ve had many questions on the Affordable Care Act—and recently, we’ve seen an uptick, as business owners are concerned about newly effective regulations prohibiting employers from reimbursing employees for health care expenses.
According to a 2014 NFIB survey on the Affordable Care Act, 18% of small business employers do not offer a group health plan, but give their workers additional pay to compensate for the purchase of health insurance or direct medical expenses. However, under IRS Notice 2013-54, such arrangements are described as employer payment plans, which, as of July 1, 2015, are now illegal under the Affordable Care Act. Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies. What this means for small business:
• Employers may not establish an annual limit on the dollar amount of benefits for any individual. An employer sponsored health reimbursement plan used to purchase coverage on the individual market does not comply with this rule and faces penalty.
• The penalty for businesses that do not comply is a $100 per day excise tax per applicable employee (which is $36,500 per year, per employee), up to $500,000, under section 4980D of the Internal Revenue Code.
• The penalty affects all businesses that provide reimbursement for more than one employee.
NFIB is fighting to protect business owners from this penalty and is working to reinstate flexibility in benefit offerings. On June 25th, Congress introduced bipartisan legislation in the House and Senate, which would protect small businesses from the Internal Revenue Service (IRS) penalties recently created through regulation, and would provide much needed flexibility for small business owners to assist their employees with health insurance premiums and healthcare expenses.
For now, the IRS regulations stand as the law of the land. As absurd as it may be, the law—which was intended to help people afford health care—now stands as an affirmative barrier for employers who want to help their employees with health care expenses. And the most affected businesses are those that have been priced out of the small group insurance market.