What Employers Need to Know About Employer Payment Plans

Some employers may have offered employees pre-tax dollars to help purchase insurance. Such arrangements are called Employer Payment Plans.  Now, however, Employer Payment Plans are prohibited under the Affordable Care Act (ACA) because they are considered group health plans. Under the ACA, group health plans may not establish any annual limit on the dollar amount of benefits for any individual and must provide certain preventive care services without imposing any cost-sharing requirements for these services. Since Employer Payment Plans do not satisfy these requirements, any employer that maintains an Employer Payment Plan for its employees will be subject to a penalty of $100 per day per affected individual.

Nonetheless, an arrangement under which an employee may choose to either receive cash or have an after-tax amount applied toward health coverage is not considered an Employer Payment Plan.  Employers may therefore establish payroll practices by which they forward post-tax employee wages to a health insurance issuer at the direction of an employee without establishing a group health plan, if:

1. No contributions are made by the employer;
2. Participation in the program is completely voluntary for employees;
3. The employer does not endorse the program (although the employer may permit the insurer to publicize the program to its employees and the employer may collect premiums through payroll deductions or dues check offs and remit these funds to the insurer); and
4. The employer receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions.