November 2nd, 2013 – New guidance confirms that HRAs cannot be used with individual insurance under ACA requirements. There is an exemption for retirees where the company funds the HRA and the money is used for the purchase of individual health insurance.
The guidance also precludes other pre-tax employer reimbursements of employees’premiums for individual health coverage. Companies that help their employees purchase individual health insurance on a pre-tax basis will have to stop by the end of 2013 or face an ACA penalty of $100 per day for each employee who is allowed to continue purchasing individual insurance on a pre-tax basis. The logic behind the restriction is so that an employee can not receive both pre-tax premium payments and a federal premium subsidy.
The guidance says that employers can provide after-tax subsidies to their employees for the purchase of individual health insurance. They may also set up an employee’s payment of individual health insurance premiums via payroll deduction, so long as it is done on an after-tax basis.