455 / Under the ACA, can an employer reimburse an employee for the cost of individual health insurance coverage without violating the prohibition on plans that place annual dollar limits on available benefits?

The ACA market reform provisions generally prohibit employers from reimbursing employees for individual health insurance premiums.¹ This is because these types of employer-sponsored reimbursement arrangements typically place a cap on the amount that the employer will reimburse for these expenses, in violation of the ACA prohibition on annual benefit limits. This is the case whether or not the payments are treated as pre-tax or after-tax to the employee. However, IRS Notice 2015-17 provides an exception for employers not subject to the employer mandate (they are not applicable large employers) and the shareholders of S corporations. These two types of employers were permitted to continue to reimburse individual health insurance premiums through June 30, 2015 without penalty.

This relief was extended by the introduction of QSEHRAs (see Q 350), which allow certain small employers to reimburse employees for the cost of health insurance premiums through HRAs, and further through the introduction of ICHRAs, available to employers of all sizes.

See Q 447 for a discussion of situations where an employer-sponsored reimbursement arrangement may be treated as integrated with another type of policy so as to avoid violating the prohibition on annual benefit limits.