Colleges and universities now have a bit more time to make changes to student-employee health insurance packages that don’t comply with the Affordable Care Act (ACA).
The IRS granted transition relief in Notice 2016-17, issued February 5, 2016, giving colleges and universities through year-end 2016 to bring their premium-reduction arrangements into compliance with the ACA’s annual limits prohibition and its requirement to provide preventive services without cost sharing.
Many colleges and universities provide students with health coverage at greatly reduced or no cost as part of their student package. Students then receive a bill from the school for the health coverage premium, taking into account a premium reduction arrangement.
Because some students also perform services for the school (such as teaching or research), the premium-reduction arrangements provided to students could be considered employer-sponsored group health plans, which are viewed as employer payment plans (EPPs). These violate the market-reform provisions of the ACA. Whether a particular arrangement constitutes a group health plan will depend on its particular facts and circumstances.
Plan Types and Requirements
Under guidance issued in September 2013, the IRS defines health reimbursement arrangements, or HRAs, as an arrangement funded solely by an employer that reimburses an employee for medical care expenses—as defined under Internal Revenue Code (IRC) Section 213(d)—up to a maximum dollar amount for a coverage period. This includes medical expenses incurred by an employee as well as his or her spouse, dependents, and any children who, as of the end of the taxable year, haven’t attained age 27. HRAs generally are considered group health plans.
The IRS also defines employer payment plan as a group health plan under which an employer either reimburses an employee for some or all of the premium expenses incurred for an individual market health insurance policy or directly pays a premium for an individual market health insurance policy covering the employee.
As group health plans, these arrangements must satisfy the ACA’s applicable group market reforms, including the ban on annual or lifetime dollar limits on essential health benefits and the requirement to provide preventive care services without cost sharing. The guidance states that EPPs and HRAs fail to comply with the requirements because, by definition, they include dollar limits on the amount of reimbursements or payments.
Working Toward Compliance
Using prohibited arrangements subjects the employer to significant excise taxes under IRC Section 4980D—$100 per day, per employee—and to actions for equitable relief under the Employee Retirement Income Security Act (ERISA).
The 2013 guidance prohibits these employer health care arrangements from being integrated with individual market policies to satisfy the market reform requirements, but arrangements won’t violate the market reform provisions when integrated with a group health plan that otherwise complies with those provisions. Institutions should evaluate the arrangements they have in place for individuals who are both students and employees to determine whether the arrangements constitute EPPs. In many cases they won’t, but if they do, the institutions that administer them should identify and adopt alternative arrangements that don’t violate the ACA’s applicable group market reforms.
Given the ambiguity of the issue and to provide additional time for institutions to correct the situation, the IRS won’t assert that a premium reduction arrangement fails to satisfy Public Health Services Act Section 2711 or 2713, as added by the ACA, if the arrangement is offered in connection with other student health coverage (insured or self-insured) for a plan year or policy year beginning before January 1, 2017.
We're Here to Help
For insight on whether your health plan for student-employees satisfies the ACA’s requirements, or to learn about alternative plan structures that may suit your circumstances, contact your Moss Adams professional.