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.
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