Affordable Care Act: Is Your School in Danger of Paying $100 Per Day in Penalties?

Situation

Troas Bible College (TBC), a private university under Internal Revenue Code section 501(c)(3 and section 170(b)(1)(A)(ii), has been lured by a vendor who is marketing a “Section 105 Reimbursement Plan”.  The program purports to allow TBC to cancel its group health insurance policies and offer employees a deal where they work with health insurance brokers or agents to help them select individual employee insurance policies in which eligible employees then have access to the premium tax credits for Marketplace coverage.  TBC’s Assistant Controller, Jose, calls us to ask if this plan is “legit”.

We say,  “No way, Jose and it may result in $100 per day per employee (participant) excise taxes under I.R.C. section 4980D.” And, under Notice 2015-17, if the ‘reimbursement plan’ is not ‘fixed’ by June 30, 2015, the IRS is planning to assess those $100 per day penalties by requiring organizations to file Form 8928 and pay those penalties.

Rules

From FAQs About Affordable Care Act Implementation (Part XXII) [From IRS, DOL, HHS]:

Q3: A vendor markets a product to employers 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 allow eligible employees to access the premium tax credits for Marketplace coverage. Is this permissible?

No. The Departments have been informed that some vendors are marketing such products. However, these arrangements are problematic for several reasons. First, the arrangements described in this Q3 are themselves group health plans and, therefore, employees participating in such arrangements are ineligible for premium tax credits (or cost-sharing reductions) for Marketplace coverage. The mere fact that the employer does not get involved with an employee’s individual selection or purchase of an individual health insurance policy does not prevent the arrangement from being a group health plan. DOL guidance indicates that the existence of a group health plan is based on many facts and circumstances, including the employer’s involvement in the overall scheme and the absence of an unfettered right by the employee to receive the employer contributions in cash. Second, as explained in DOL Technical Release 2013-03, IRS Notice 2013-54, and the two IRS FAQs addressing employer health care arrangements referenced earlier, such arrangements are subject to the market reform provisions of the Affordable Care Act, including the PHS Act section 2711 prohibition on annual limits and the PHS Act 2713 requirement to provide certain preventive services without cost sharing. Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code.

See the full FAQ

Bottom Line

All colleges, seminaries, and universities should review the rules with regard to health insurance premium “reimbursements” and compliance with the Affordable Care Act to ensure you’re complying with the spirit of the law. Remember, Notice 2015-17 has imposed a firm deadline of June 30, 2015 to “fix” health insurance premium “plans” that are out of compliance.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.