Beginning in July, penalties under the Affordable Care Act will apply to employers who provide payments to employees to cover premiums on individual health insurance policies. This is true whether the payments are considered before-tax or after-tax.
In the past, some small businesses have reimbursed their employees or covered their costs of obtaining individual health insurance policies, rather than going through the process of obtaining a group policy for the company and its employees.
Directives from the Department of Labor, Department of Health and Human Services and the Department of the Treasury have clarified that this practice is incompatible with certain requirements of the Affordable Care Act and will result in penalties (up to $100/day per affected employee, with a maximum of $36,500/year per employee).
Certain transition relief has allowed small businesses to continue the practice through this month, but the relief period is coming to an end.
If you have been providing your employees with reimbursement or payments to cover their individual health insurance policies, you should stop the practice this month. Businesses may provide employees with a stipend or pay increase that the employees may, if they choose, use for purchasing individual health insurance policies. But there can be no requirement or agreement that the increase or stipend must be used for health insurance, and the employer cannot require the employee to provide documentation that health insurance has been obtained.