Switching from group health insurance to individual policies with financial assistance from employers can meet the requirements of ACA compliance, provided certain conditions are met. The Tri-agencies approved this approach in Notice 2015-17, but require the following:

  • The employer payments must be after-tax amounts.  The payments cannot be made in part or in total by using a HRA, or HRP, or any other provision of Section 105 of the IRS code.  Any employee purchasing an individual market plan with tax-preferred dollars is ineligible for a premium subsidy or cost-sharing benefit, because a HRA or HRP is by definition a “group health plan”.

  • The employee must be given the unfettered right to choose either cash or after-tax payments to be applied toward health coverage or other benefits.

  • Any payroll practice of forwarding the after-tax payments to a health insurance carrier must be at the discretion of the employee.

  • If an employer ‘conditions’ the receipt of money on the purchase of insurance ONLY, this creates a “group health plan” to which the ACA market reforms would apply.  There are no exceptions.

Click below to read more about the ruling from
the IRS: