I.R.S. Bars Employers From Dumping Workers Into Health Exchanges

[LTC8K6]

Well, this is what my employer did...we are a small company though, so I think we are exempt. This is sure to piss off a lot of folks, though. It seems like the ACA is being made up on the fly.

http://www.nytimes.com/2014/05/26/u...mping-workers-into-health-exchanges.html?_r=0

I.R.S. Bars Employers From Dumping Workers Into Health Exchanges

When employers provide coverage, their contributions, averaging more than $5,000 a year per employee, are not counted as taxable income to workers. But the Internal Revenue Service said employers could not meet their obligations under the health care law by simply reimbursing employees for some or all of their premium costs.

Christopher E. Condeluci, a former tax and benefits counsel to the Senate Finance Committee, said the ruling was significant because it made clear that “an employee cannot use tax-free contributions from an employer to purchase an insurance policy sold in the individual health insurance market, inside or outside an exchange.”

If an employer wants to help employees buy insurance on their own, Mr. Condeluci said, it can give them higher pay, in the form of taxable wages. But in such cases, he said, the employer and the employee would owe payroll taxes on those wages, and the change could be viewed by workers as reducing a valuable benefit.

Andrew R. Biebl, a tax partner at CliftonLarsonAllen, a large accounting firm based in Minneapolis, said the ruling could disrupt arrangements used in many industries.

“For decades,” Mr. Biebl said, “employers have been assisting employees by reimbursing them for health insurance premiums and out-of-pocket costs. The new federal ruling eliminates many of those arrangements by imposing an unusually punitive penalty.”

When an employer reimburses employees for premiums, the arrangement is known as an employer payment plan. “These employer payment plans are considered to be group health plans,” the I.R.S. said, but they do not satisfy requirements of the Affordable Care Act.

 

[Jhhnn]

Tell us something that wasn't obvious from the start, OK?

The ACA isn't intended to replace employer sponsored plans, but rather to fill in where such don't exist.

 

[LTC8K6]

Tell the NYT...

They seem to think it's news.

My employer dumped us on to the exchange and is paying us so we can pay the premiums.

Prior to reading this article, I had no idea the ACA would not allow this practice. There was lots of talk of employers doing this as soon as they could.

I am only assuming it's okay in my case because we are a small business. I happen to be the only employee not getting a subsidy...

I haven't actually read that small companies are exempt from this particular rule.

 

[Fox5]

Yeah my company did this too, but we're a small business.

 

[michal1980]

Obama IRS controlled makes up Obamacare laws, just like Obama makes up Obamacare laws.

They did this because right around election time, baring no more ACA delays there would be millions of people dropped off employer coverage, and they can give republicans more ammunition.

This change is all about electing democrats.

 

[Fern]

Tell us something that wasn't obvious from the start, OK?

The ACA isn't intended to replace employer sponsored plans, but rather to fill in where such don't exist.

Read the last paragraph:

When an employer reimburses employees for premiums, the arrangement is known as an employer payment plan. “These employer payment plans are considered to be group health plans,” the I.R.S. said, but they do not satisfy requirements of the Affordable Care Act.

It appears under prior law such arrangements were considered employer plans and that the ACA left them out. I.e., it's a change that will screw over employees of small businesses.

We've been through this many times with the IRS already. E.g., if you were self employed working in your Sub S corp the IRS got damn picky for no reason about qualifying as an employer plan. If the owner/employer was the only employee of the S corp the HI companies couldn't, by definition, create and sell a "group" plan. So the HI company had to put the HI plan in the owner/employee's own name. The IRS ruled it didn't qualify. All this did was make it much harder for small businesses/self employed people to buy HI. They eventually changed their ruling.

This appear s to be similar and serves no real point. It just penalizes these employees and small employers.

Fern

 

[Fern]

Inclusion of the term "Health Exchanges" is incorrect or at least misleading. This has nothing to do with HE's:

Christopher E. Condeluci, a former tax and benefits counsel to the Senate Finance Committee, said the ruling was significant because it made clear that “an employee cannot use tax-free contributions from an employer to purchase an insurance policy sold in the individual health insurance market, inside or outside an exchange.”

Instead this ruling attacks a meaningless distinction. If the employer pays the HI company directly and withholds the employees' pay for the rest it's OK. However, if the employee gives the money to the employee and then they pay in the rest it's not OK. It's "form over substance" since the two are identical in all but form.

Fern

 

[Jhhnn]

Read the last paragraph:



It appears under prior law such arrangements were considered employer plans and that the ACA left them out. I.e., it's a change that will screw over employees of small businesses.

We've been through this many times with the IRS already. E.g., if you were self employed working in your Sub S corp the IRS got damn picky for no reason about qualifying as an employer plan. If the owner/employer was the only employee of the S corp the HI companies couldn't, by definition, create and sell a "group" plan. So the HI company had to put the HI plan in the owner/employee's own name. The IRS ruled it didn't qualify. All this did was make it much harder for small businesses/self employed people to buy HI. They eventually changed their ruling.

This appear s to be similar and serves no real point. It just penalizes these employees and small employers.

Fern

Inclusion of the term "Health Exchanges" is incorrect or at least misleading. This has nothing to do with HE's:



Instead this ruling attacks a meaningless distinction. If the employer pays the HI company directly and withholds the employees' pay for the rest it's OK. However, if the employee gives the money to the employee and then they pay in the rest it's not OK. It's "form over substance" since the two are identical in all but form.

Fern

Desperate, huh?

Small business owners who are sole employees qualify for exchange plans based on income, with subsidies where applicable. For all but he most successful, the subsidies likely more than offset any losses from using pretax income for health insurance. That was the only advantage in having a "group plan" for the owner & family.

For most small biz employees, the effect is similar. If the boss gives you a raise commensurate with what he paid towards your group insurance, exchange subsidies apply.

The only people who come out on the short end are the more affluent or those whose employers screw 'em on the raise part.

What do the small business employees posting in this thread find to be the truth about their personal situations? Better, worse, or about the same?

I recognize that can be a difficult comparison, given that many small business group plans had very skimpy coverage compared to ACA plans...

 

[sactoking]

I'd be interested to see the IRS rule because, based on other recent rules, this could be likely to be thrown out in tax court as noncompliant with overall interpretation of the tax code.

 

[Jhhnn]

I'd be interested to see the IRS rule because, based on other recent rules, this could be likely to be thrown out in tax court as noncompliant with overall interpretation of the tax code.

Yeh, sure, that's the dry end of it, many months or years from now, if ever. It's also peripheral to the issues raised in the OP.

If we think about it at all, it cuts some of the games. It imposes a more honest & equal way of doing things on all exchange participants. Everybody pays with after tax money so that subsidies can be more fairly applied.

It cuts out some weaseldom.

 

[werepossum]

I'd be interested to see the IRS rule because, based on other recent rules, this could be likely to be thrown out in tax court as noncompliant with overall interpretation of the tax code.

Not a problem. Obama can simply make a law via executive order.

 

[sactoking]

So I've read IRS Notice 2013-54 and this is what I think it says:

Revenue Ruling 61-146 "holds that if an employer reimburses an employee's substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee's gross income under Code § 106." The Revenue Ruling does not hinge the employer payment plan upon use of an HRA. The Notice then proceeds to explain why HRAs may not meet the requirements of the Act. The only reference to employer payment plans is a bit buried and, frankly, convoluted:

Question 1: The HRA FAQs provide that an employer-sponsored HRA cannot be integrated with individual market coverage, and, therefore, and HRA used to purchase coverage on the individual market will fail to comply with the annual dollar limit prohibition. May other types of group health plans used to purchase coverage on the individual market be integrated with that individual market coverage for purposes of the annual dollar limit prohibition?

Answer 1: No. A group health plan, including an HRA, used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes of the annual dollar limit prohibition.

For example, a group health plan, such as an employer payment plan, that reimburses employees for an employee's substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. However, the employer payment plan will fail to comply with the annual dollar limit prohibition because (1) an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement, and (2) an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement.

What they appear to be saying is this:
All ACA-compliant group plans must not impose annual or lifetime dollar limits on the essential health benefits. In an employer payment plan, the IRS considers the amount of premium paid by the employer to be an annual limit. As such, the employer payment plan is noncompliant and will subject the employer to penalties.

The problem is the Notice's interpretation requires the IRS to ignore that a limited benefit (employer reimbursement) used to purchase an unlimited benefit (ACA-compliant individual health insurance) is factually an unlimited benefit. If you receive $20,000 to purchase an unlimited benefit you have an unlimited benefit, not a benefit capped at $20,000. It appears to be a situation where the outcome (preventing dumping onto the exchanges) is driving the policy interpretation.

 

[Jhhnn]

It appears to be a situation where the outcome (preventing dumping onto the exchanges) is driving the policy interpretation.

See post #2.

Small employers can still dump employees into the exchanges- they just can't do it with pre-tax money as bait.

 

[sactoking]

See post #2.

Small employers can still dump employees into the exchanges- they just can't do it with pre-tax money as bait.

This shouldn't affect small employers at all. Revenue Ruling 61-146 would still control for small employers, meaning that an employer payment plan is still considered a group health plan and still eligible for Section 106 tax treatment. This actually applies to large employers as well. What the notice does is say "This legal thing that you used to do is still legal except that we've also made it noncompliant with this new thing", which is offering minimum essential coverage.

And, really, for large employers, this doesn't negate the fact that other rules allow them to "risk-shape" by only offering coverage to their healthiest ~95% in order to meet the "substantially all" safe harbor provisions.

 

[Jhhnn]

This shouldn't affect small employers at all. Revenue Ruling 61-146 would still control for small employers, meaning that an employer payment plan is still considered a group health plan and still eligible for Section 106 tax treatment. This actually applies to large employers as well. What the notice does is say "This legal thing that you used to do is still legal except that we've also made it noncompliant with this new thing", which is offering minimum essential coverage.

And, really, for large employers, this doesn't negate the fact that other rules allow them to "risk-shape" by only offering coverage to their healthiest ~95% in order to meet the "substantially all" safe harbor provisions.

Which doesn't apply to subsidized exchange plans, correct?

 

[sactoking]

Please elaborate.

 

[drebo]

Isn't the purpose of this new law to reduce costs for everyone?

If so, wouldn't it help reduce costs by having more people in the exchanges? Wasn't that their purpose (as opposed to individual plans)?

Wouldn't, then, small businesses dumping their old group plans in favor of their employees going to the exchanges be benefitting everyone?

I don't understand the point of this rule in the context of what Obama said this law was supposed to do.

 

[amassimi]

Good afternoon. I work for FOX News and we are working on a story regarding this recent article: http://www.nytimes.com/2014/05/26/u...workers-into-health-exchanges.html?ref=health

I noticed some of your posts on the subject matter. I was wondering if the money your employer paid you to pay for your healthcare premium was pre tax or post tax.
Thank you for your time. Please feel free to email me at alice.massimi@foxnews.com
Alice Massimi
FNC DC Bureau

 

[piasabird]

ACA is all about control and turning workers into slaves. The IRS has to hire thousands and maybe hundreds of thousands of IRS agents to keep up with billions of people. I don't think it is possible to do this. If the IRS messes with too many people the whole federal taxation system will cease to function. You have to send in a return for it to work.

 

[Fern]

So I've read IRS Notice 2013-54 and this is what I think it says:

Revenue Ruling 61-146 "holds that if an employer reimburses an employee's substantiated premiums for non-employer sponsored hospital and medical insurance, the payments are excluded from the employee's gross income under Code § 106." The Revenue Ruling does not hinge the employer payment plan upon use of an HRA. The Notice then proceeds to explain why HRAs may not meet the requirements of the Act. The only reference to employer payment plans is a bit buried and, frankly, convoluted:


What they appear to be saying is this:
All ACA-compliant group plans must not impose annual or lifetime dollar limits on the essential health benefits. In an employer payment plan, the IRS considers the amount of premium paid by the employer to be an annual limit. As such, the employer payment plan is noncompliant and will subject the employer to penalties.

The problem is the Notice's interpretation requires the IRS to ignore that a limited benefit (employer reimbursement) used to purchase an unlimited benefit (ACA-compliant individual health insurance) is factually an unlimited benefit. If you receive $20,000 to purchase an unlimited benefit you have an unlimited benefit, not a benefit capped at $20,000. It appears to be a situation where the outcome (preventing dumping onto the exchanges) is driving the policy interpretation.

I've quickly scanned the material and am inclined to agree with your assessment with one exception: The outcome is not soley driven by a desire to prevent "dumping onto the exchanges. The way I read it any individual policy, whether obtained on the exchange or not, is now considered nonqualifying.

Initially I felt they might be trying to prevent an unintended double benefit. E.g., if the employee receives pre-tax money to purchase on the exchange they may receive a subsidy. If their income was understated (by the pre-tax amount) their subsidy would be overstated. There is a fairly simple solution to prevent such an unintended double benefit, but I will not enumerate it now.

However, recognizing that individual plans not purchased on the exchange, thus no subsidy available, are also barred the objective must be something else. I now suspect that this is a rather heavy handed way to prevent what many have warned of from the start of Obamacare: Employers opting to cancel group plans, paying the fine and instead giving the employees a lump sum so they can go find their own insurance.

I haven't read the statutes, but if this is not codified and merely the IRS's interpretation (limited employer reimbursement = limited insurance benefit) I fully expect this to be challenged in court. Aside from the double benefit issue, there is no meaningful difference between an employer paying $5,000 for group coverage and each employee receiving $5,000 substantiated to purchase individual coverage. It's merely 'form over substance'.

Fern

 

[Fern]

Desperate, huh?

"Desperate"?

LOL what?

This is about tax. There's nothing "desperate' to it.

Small business owners who are sole employees qualify for exchange plans based on income, with subsidies where applicable. For all but he most successful, the subsidies likely more than offset any losses from using pretax income for health insurance. That was the only advantage in having a "group plan" for the owner & family.

The only people who come out on the short end are the more affluent or those whose employers screw 'em on the raise part.

You cannot be serious?

To blithely dismiss the problem of taxing employer provided money for the purchase by claiming some offset is absurd on its face. There is no evidence the intent of the law change was for the subsidy to offset the increase in income tax. In fact, there is no evidence that the subsidy will offset the tax increase.

Moreover, your assertion that only the most success will suffer appears to be factually incorrect. This link shows subsidy amount by income and family size: http://www.financialsamurai.com/sub...limits-for-the-affordable-care-act-obamacare/

A single individual may not qualify for a subsidy at only $30k in income. A married couple receives no meaningful subsidy ate only $53k in income. At $26,500 in income for each?

Fern

 

[sactoking]

I've quickly scanned the material and am inclined to agree with your assessment with one exception: The outcome is not soley driven by a desire to prevent "dumping onto the exchanges. The way I read it any individual policy, whether obtained on the exchange or not, is now considered nonqualifying.

Initially I felt they might be trying to prevent an unintended double benefit. E.g., if the employee receives pre-tax money to purchase on the exchange they may receive a subsidy. If their income was understated (by the pre-tax amount) their subsidy would be overstated. There is a fairly simple solution to prevent such an unintended double benefit, but I will not enumerate it now.

However, recognizing that individual plans not purchased on the exchange, thus no subsidy available, are also barred the objective must be something else. I now suspect that this is a rather heavy handed way to prevent what many have warned of from the start of Obamacare: Employers opting to cancel group plans, paying the fine and instead giving the employees a lump sum so they can go find their own insurance.

I haven't read the statutes, but if this is not codified and merely the IRS's interpretation (limited employer reimbursement = limited insurance benefit) I fully expect this to be challenged in court. Aside from the double benefit issue, there is no meaningful difference between an employer paying $5,000 for group coverage and each employee receiving $5,000 substantiated to purchase individual coverage. It's merely 'form over substance'.

Fern

I disagree. The Notice doesn't attempt to invalidate the Revenue Ruling, which means that employer payment plans would still be considered group health coverage. Instead, the Notice stipulates that while the employer payment plan is considered group health coverage it is not considered to be minimum essential coverage by virtue of the fact that there is a "limited benefit." The only purpose of such a regulatory contortion would be to say that it doesn't fulfill the employer shared responsibility clause, so any employer going down that route would not be deemed to be offering affordable minimum coverage and would be subject to the fine. In other words, they're saying "We're not overturning the Revenue Ruling (because they can't) but we are going to try to make compliance with the Revenue Ruling so distasteful as to effectively render it void." This is true regardless of the status of the underlying individual policy as a QHP or not.

The second aspect, relating to subsidies, is not germane. IF the Notice had not been issued, meaning that employer payment plans were not considered violative of the annual limit provisions, then the employer payment plan would be considered minimum essential coverage (and the employer would not be subject to the penalties discussed above). However, by virtue of being minimum essential coverage, the employees would be barred from receiving tax credits or cost-sharing reductions; APTC and CSR are not available to individuals with other minimum essential coverage. Thus there could have been no double-dipping.

 

[Jhhnn]

I disagree. The Notice doesn't attempt to invalidate the Revenue Ruling, which means that employer payment plans would still be considered group health coverage. Instead, the Notice stipulates that while the employer payment plan is considered group health coverage it is not considered to be minimum essential coverage by virtue of the fact that there is a "limited benefit." The only purpose of such a regulatory contortion would be to say that it doesn't fulfill the employer shared responsibility clause, so any employer going down that route would not be deemed to be offering affordable minimum coverage and would be subject to the fine. In other words, they're saying "We're not overturning the Revenue Ruling (because they can't) but we are going to try to make compliance with the Revenue Ruling so distasteful as to effectively render it void." This is true regardless of the status of the underlying individual policy as a QHP or not.

The second aspect, relating to subsidies, is not germane. IF the Notice had not been issued, meaning that employer payment plans were not considered violative of the annual limit provisions, then the employer payment plan would be considered minimum essential coverage (and the employer would not be subject to the penalties discussed above). However, by virtue of being minimum essential coverage, the employees would be barred from receiving tax credits or cost-sharing reductions; APTC and CSR are not available to individuals with other minimum essential coverage. Thus there could have been no double-dipping.

So, despite the byzantine obfuscations, the IRS has made tax free payments for health insurance outside of group coverage so unattractive as to not exist.

If I have to pay for exchange coverage with after tax money, it's only reasonable that all should do so and that none should receive employer subsidies as well.

Private group coverage is one thing, Exchange coverage is entirely another for the purposes at hand.

 

[Jhhnn]

"Desperate"?

LOL what?

This is about tax. There's nothing "desperate' to it.

You cannot be serious?

To blithely dismiss the problem of taxing employer provided money for the purchase by claiming some offset is absurd on its face. There is no evidence the intent of the law change was for the subsidy to offset the increase in income tax. In fact, there is no evidence that the subsidy will offset the tax increase.

If some Exchange members must pay with after tax money, then all should be required to do so. Anything else is what would be a "problem".

Moreover, your assertion that only the most success will suffer appears to be factually incorrect. This link shows subsidy amount by income and family size: http://www.financialsamurai.com/sub...limits-for-the-affordable-care-act-obamacare/

A single individual may not qualify for a subsidy at only $30k in income. A married couple receives no meaningful subsidy ate only $53k in income. At $26,500 in income for each?

Fern

Just cut to the bottom line. Their $420/mo Exchange copay is comparable to that for equivalent employer sponsored family plans under the old system. They lose nothing over that scenario. They're guaranteed coverage, & they gain enormously over the price of individual plans under the old system, which were simply prohibitive at that income level.

 

[sactoking]

Private group coverage is one thing, Exchange coverage is entirely another for the purposes at hand.

Except it's really not. Is there a practicable difference between an employer sponsoring a fully-insured group plan and the same employer paying an equal amount toward a bunch of individual plans?