IRS May Penalize Employers That Move Workers to Health Insurance Exchanges

29 May

Employers have looked for ways to save health insurance costs.

As healthcare costs increase and provisions of the Affordable Care Act (ACA) are rolled out, many employers are looking to ask employees to find health insurance on the federal or state health insurance marketplaces – a benefits and payroll management strategy that can save employers money. Some choose to offset the move by providing workers with funds to help workers pay for their premiums and various healthcare costs, but The New York Times recently reported the Internal Revenue Service (IRS) has ruled against the approach.

A tweak of Notice 2013-54 bars employers from dumping their workers onto the exchanges just to save the company in healthcare costs. According to the IRS, employer payment plans, or arrangements where employers don't provide health insurance to their workers but instead reimburses employees for their healthcare costs, are subject to healthcare market reforms. The IRS said it will penalize employers if these plans don't comply with market reforms, and the fine is a $100 per day per applicable employee excise tax. This adds up to $36,500 annual for each worker.

Christopher Condeluci, a former counsel to the Senate Finance Committee, told The New York Times employers should instead provide workers with higher pay, which is taxable, if the company wants to move employees to the exchanges.

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