OFFERING CASH INSTEAD OF COVERAGE

Offering Cash Instead of Coverage

The U.S. Departments of Labor, Health and Human Services and the Treasury have offered other guidance about compliance with the Affordable Care Act when employers are considering offering cash instead of health coverage. On Nov. 6, 2014, the departments published frequently asked questions related to the issue. The following information is paraphrased from the document:

Q: An employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with market reforms?
A: No, the employer’s payment arrangement in this scenario would still be considered part of a plan, fund or other arrangement established or maintained for the purpose of providing medical care to employees, regardless of whether the money was pre-tax or post-tax to the employee. Because the arrangement would be considered a group health plan, it would be subject to the market reform provisions of the PPACA applicable to group health plans.

Q: An employer offers employees with high claims risk a choice between enrollment in its standard group health plan or cash. Does this comply with market reforms?
A: No, this is considered discrimination based on one or more health factors and does not comply with market reforms and may, depending on the facts and circumstances, also result in discrimination in favor of highly compensated individuals in violation of Internal Revenue Code section 125 cafeteria plan nondiscrimination rules.

Q: A vendor markets a product 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 allows eligible employees to access the premium tax credits for Marketplace coverage. Is this permissible?
A: No, these arrangements are considered group health plans, and, therefore, employees participating in such arrangements are ineligible for premium tax credits or cost-sharing reductions for Marketplace coverage (from an Exchange). Also, such employer healthcare arrangements cannot be integrated with individual market policies to satisfy the market reforms and will trigger penalties such as excise taxes.