The article below describes a new health care reform development (additional federal agency guidance on prohibition of premium reimbursement arrangements).

1. NEWS FLASH
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Willis Human Capital Practice, National Legal & Research Group
On February 18, 2015, the Internal Revenue Service (IRS) issued Notice 2015-17 to provide
limited relief for certain employer health care premium reimbursement arrangements that violate
the Patient Protection and Affordable Care Act (PPACA) and to clarify the prior guidance issued
by the three federal agencies (IRS, Labor and Health and Human Services) concerning that
PPACA prohibition.
Executive Summary
While reaffirming the federal agencies’ view that employer payment plans are subject to
potential penalties for noncompliance with PPACA, the IRS has relaxed enforcement of this
standard in certain limited situations. In addition, the IRS further elaborated on what constitutes
an “employer payment plan” subject to that standard, which the IRS defines as
“a group health plan under which an employer reimburses an employee for some or all of the
premium expenses incurred for an individual health insurance policy or directly pays a
premium for an individual health insurance policy covering the employee, such as
arrangements described in Revenue Ruling 61-146, 1961-2 C.B. 25.”
The following are the key points discussed in this guidance:
• Transition relief through June 30, 2015 is available for certain small employers from the
PPACA excise taxes that would otherwise apply to such employers’ premium reimbursement
arrangements;
• Transition relief at least through the end of 2015 is also available for 2-percent shareholder-
employee health care arrangements from the PPACA excise taxes that would otherwise apply
to such arrangements;
• Employer Medicare premium reimbursement arrangements and TRICARE-related medical
expense reimbursement arrangements are subject to the employer payment plan restriction,
but can be integrated with employer group health plans in order to meet PPACA
requirements;
FEBRUARY 25, 2015
FEDERAL AGENCIES PROVIDE CLARIFICATION AND LIMITED
RELIEF REGARDING PREMIUM REIMBURSEMENT
ARRANGEMENTS

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NEWS FLASH | Willis Human Capital Practice, National Legal & Research Group
• An employer can increase an employee’s compensation to help the employee pay for
individual health insurance coverage without violating the employer payment plan
prohibition; and
• The employer payment plan restriction applies when employer reimbursements are provided
on an after-tax basis as well as a pre-tax basis.
Background
On September 13, 2013, Treasury (in IRS Notice 2013-54) and the DOL (in DOL Technical
Release 2013-03) published guidance in which they advised that employer health care payment
arrangements, like health reimbursement arrangements (HRAs), flexible spending accounts
(FSAs) and premium reimbursement arrangements (employer payment plans), are considered
group health plans, and in order to avoid noncompliance with PPACA requirements must either
be integrated with another group health plan that meets PPACA requirements or be limited to
providing excepted benefits. Among other things the agencies ruled that an employer payment
plan that merely reimburses individual health insurance policy premiums violates PPACA. This
guidance is discussed in more detail in Willis’ Health Care Reform Update for the Week of
September 23, 2013.
Subsequently, the IRS published FAQs on May 13, 2014, confirming its position regarding
employer payment plans and the potential penalties to which they are subject, i.e., an excise tax
of $100 per day per applicable employee, which could amount to as much as $36,500 per year
per employee under Section 4980D of the Internal Revenue Code. This guidance is discussed in
more detail in Willis’ Health Care Reform Update for the Week of May 26, 2014.
In FAQs published on November 6, 2014, the Departments of Treasury/IRS, Labor and Health
and Human Services underscored their prior determination that employer payment plans cannot
meet PPACA requirements, regardless of whether the employer payments are made on a pre-tax
or post-tax basis. In addition, the Departments ruled that employer payments to Code Section
105 reimbursement plans that work with health insurance brokers to help employees select
individual insurance policies are another form of employer payment plan that is prohibited by
PPACA. Further, if an employer offered cash in lieu of health coverage only to high-claims-risk
employees, such an arrangement violated the HIPAA prohibition against health status
discrimination and was potentially discriminatory under the Section 125 cafeteria plan rules.
This guidance is discussed in more detail in the November 19, 2014 News Flash.
New Guidance
FAQ-1—Transition Relief for Small Employers
Small employers who maintain an employer payment plan that pays or reimburses employees for
individual health insurance policy premiums or Medicare Part B or Part D premiums will not be

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NEWS FLASH | Willis Human Capital Practice, National Legal & Research Group
subject to the PPACA excise tax during the period January 1, 2014 through June 30, 2015. A
small employer is an employer that is not an applicable large employer or ALE (i.e., an employer
that has on average 50 or more full-time employees or full-time employee equivalents). ALE
status is determined based on the number of employees an employer has on business days during
the preceding calendar year, and for 2014 and 2015 an employer has the option to use a six-
month period during the prior calendar year.
The IRS indicated that it was providing this relief because such small employers may need
additional time to obtain group health coverage or adopt a suitable alternative. Please note,
however, that the above rule only applies to non-ALEs. An ALE is subject to the PPACA excise
tax for a noncompliant employer payment plan, including a corporate member of a controlled
group that is determined to be an ALE even though the corporate member has less than 50 full-
time employees and full-time employee equivalents, since such a corporate member is also
considered to be an ALE.
FAQ-2—Relief Pending Guidance for Certain S Corporation Arrangements
Under IRS Notice 2008-1, if an S corporation pays for or reimburses premiums for a 2-percent
shareholder-employee’s individual health insurance coverage, the payment or reimbursement is
included in the 2-percent shareholder-employee’s income but the 2-percent shareholder-
employee can receive a tax deduction if eligible for the deduction under Internal Revenue Code
Section 162(l). The Departments indicated that they are contemplating publication of additional
guidance on the application of the PPACA market reforms to such 2-percent shareholder-
employee health care arrangements, but until that guidance is issued and at least through the end
of 2015, the PPACA excise tax will not be applied to such arrangements.
This guidance does not apply to reimbursements of individual health insurance coverage for S
corporation employees who are not 2-percent shareholders—unless the small employer exception
discussed above applies. The IRS also noted that because Internal Revenue Code Section
9831(a)(2) states that the PPACA market reforms do not apply to a group health plan that has
fewer than two participating employees, a premium reimbursement arrangement covering only a
single employee, whether or not that employee is a 2-percent shareholder-employee, generally is
not subject to the market reforms regardless of whether that arrangement constitutes a group
health plan.
FAQ-3—Integration of Medicare Premium Reimbursement Arrangement and TRICARE-Related
HRA with a Group Health Plan
• Medicare Premium Reimbursement Arrangements
Although not addressed in prior guidance, the IRS indicated that an employer’s direct payment
or reimbursement of active employees’ Medicare Part B or Part D premiums also constitutes an
employer payment plan that violates PPACA unless it is integrated with another group health
plan that complies with the annual dollar limit prohibition and the preventive service

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NEWS FLASH | Willis Human Capital Practice, National Legal & Research Group
requirements. In order for an employer Medicare premium reimbursement arrangement that
covers two or more current employees to be integrated with another group health plan offered by
the employer, the following conditions must be present:
o The employer must offer a group health plan (other than the Medicare premium employer
payment plan) to the employee that is not limited to excepted benefits and that offers
coverage providing minimum value;
o The employee participating in the Medicare premium employer payment plan must be
enrolled in Medicare Parts A and B;
o The Medicare premium employer payment plan must be available only to employees who
are enrolled in Medicare Part A and either Part B or Part D; and
o The Medicare premium employer payment plan must be limited to reimbursing only
Medicare Part B or Part D premiums and excepted benefits, including Medigap
premiums.
Consistent with its prior directions, the IRS noted that integration is not necessary and PPACA
does not apply if such an employer payment plan covers less than two active employees on the
first day of the plan year, for example, a retiree-only plan. The IRS also cautioned that because
active employees participate, such Medicare premium reimbursement arrangements are subject
to other legal restrictions, like the Medicare secondary payer rules.
• TRICARE-Related HRAs
Also for the first time, the IRS addressed arrangements under which employers pay directly or
reimburse employee medical expenses covered by TRICARE. The IRS indicated that such an
arrangement constitutes an HRA, and to the extent it covers two or more active employees, it
constitutes a group health plan subject to PPACA market reforms and per IRC Notice 2013-54
discussed above must be integrated with a group health plan to meet those requirements.
Because TRICARE is not a group health plan for integration purposes, a TRICARE medical
expense reimbursement arrangement must be integrated with another group health plan offered
by the employer that complies with the annual dollar limit prohibition and the preventive service
requirements. The following are the conditions that establish integration:
o The employer offers a group health plan (other than the HRA) that is not limited to
excepted benefits and offers coverage providing minimum value (i.e., pays at least 60%
of the cost of benefits);
o The employee participating in the HRA is enrolled in TRICARE;
o The HRA is available only to employees who are enrolled in TRICARE; and
o The HRA only reimburses cost sharing and excepted benefits, including TRICARE
supplemental premiums.
Because such an arrangement is provided to active employees, the IRS also cautions that
employers need to be aware of laws that prohibit offering financial or other incentives to
TRICARE-eligible employees to decline employer-provided group health plan coverage.

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NEWS FLASH | Willis Human Capital Practice, National Legal & Research Group
FAQ-4—Increases in Employee Compensation to Assist with Payments of Individual Market
Coverage
To the extent an employer increases an employee’s compensation without conditioning payment
of that additional compensation on the employee purchasing health coverage, the IRS declared
that such an arrangement is neither an employer payment plan nor a group health plan subject to
PPACA market reforms, and therefore, does not violate PPACA requirements. The IRS also
noted that an employer’s endorsement of a particular policy, form or issuer of health insurance in
conjunction with the payment of such additional compensation could be a prohibited employer
payment plan, but providing employees with information about the exchanges or the premium
tax credit did not constitute endorsement of a particular policy, form or issue of health insurance.
FAQ-5—Treatment of Employer Payment Plan as Taxable
Lastly, the IRS reaffirmed the position it took in prior guidance that the employer payment plan
prohibition applies when the employer is paying for the employee’s individual health insurance
policy premiums on an after-tax basis as well as on a pre-tax basis. In doing so, the IRS
indicated that it recognized how IRS Revenue Ruling 61-146 permits employer reimbursement
of employee insurance policy premiums to be excludable from an employee’s income under
Internal Revenue Code Section 106. That guidance, however, is irrelevant with regard to
whether an employer payment plan complied with the PPACA market reform provisions, and
since such an employer health care arrangement cannot be integrated with an individual
insurance policy to satisfy those market reforms, the employer payment plan is subject to the
PPACA excise tax.
Conclusion and Recommendation
IRS Notice 2015-17 provides important guidelines for obtaining relief from and complying with
the restrictions that the federal government has imposed on certain types of employer health
coverage reimbursement arrangements. Employers should review their health benefit programs
with their legal counsel to confirm whether their programs are designed and administered in
accordance with this and the other guidance published on this topic to date.
Willis’ National Legal & Research Group will continue to review and provide timely updates on
these and other related changes in Health Care Reform that affect employers.
This information is not intended to represent legal or tax advice and has been prepared solely
for informational purposes. You may wish to consult your attorney or tax adviser regarding
issues raised in this publication.