IRS Defers Penalty Enforcement for Student Health Insurance Coverage

IRS Notice 2016-17, issued February 5, 2016, defers penalty enforcement for universities that offer premium reduction arrangements in connection with student health plans. Jointly issued by the departments of Treasury, Labor, and Health and Human Services, the new guidance provides transition relief for plan or policy years that start before January 1, 2017. 

The practice of reimbursing students—typically graduate students—for the cost of student health insurance premiums as an incentive to attend a particular university could run afoul of the Affordable Care Act (ACA) and result in substantial penalty assessments. The penalties would normally be $100 per impacted individual per day of noncompliance, or $36,500 per year per individual.

The issue: premium reduction arrangements provided to students might be considered an employer payment plan (EPP) because some students perform services for a school, such as teaching or research. This violates market reform provisions of the ACA.

Next Steps

Institutions should evaluate arrangements they have in place for individuals who are students and employees to determine if they constitute an EPP or not. Universities will want to make sure they’re in compliance and make corrective steps to university plans or policies, if required, before the transition relief runs out. 

Whether a particular arrangement constitutes a group health plan will depend on the facts and circumstances. In many cases, it won’t constitute an EPP, but institutions should nevertheless identify and adopt alternative arrangements that won’t violate the ACA’s applicable group market reforms.

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To learn more about how this may affect your institution or for insight on compliance, contact your Moss Adams professional.