The Internal Revenue Service has ruled that employers cannot hand tax-free contributions to their workers and tell them to purchase health insurance, The New York Times reported.
Employers who try dumping employees into the healthcare exchanges to avoid having to pay for their coverage are now on notice that the practice is prohibited. Employers who circumvent the law are subject to a $100 a day or $36,500 a year tax penalty, the newspaper said.
The Affordable Care Act requires large employers to provide healthcare coverage to their full-time workers. Some companies figured it was less expensive to give each employee money to purchase their own coverage on an exchange rather than providing coverage through group policies. Many employers – some that now offer coverage and some that do not – had concluded that it would be cheaper to provide each employee with a lump sum of money to buy insurance on an exchange; instead of providing coverage directly.
The ruling comes as a blow to many employers who gave their workers tax-free cash contributions to purchase coverage. Andrew Biebl, a tax partner at Clifton Larson Allen in Minneapolis, said the idea of giving workers money to buy their own insurance preceded the Affordable Care Act.
“For decades, employers have been assisting employees by reimbursing them for health insurance premiums and out-of-pocket costs,” Biebl told the Times. “The new federal ruling eliminates many of those arrangements by imposing an unusually punitive penalty.”
