Employers contemplating simply giving employees tax-free cash to purchase health insurance on public exchanges will have to rethink that plan in light of new IRS regulations implementing the Affordable Care Act.
The ACA requires large employers to provide health insurance benefits to employees or face significant penalties.
The IRS ruling states that providing cash payments to employees to buy health insurance does not meet the law’s requirement for providing coverage. Employers that do so face penalties of $100 per day per employee.
The IRS concluded that the cash payments would not always allow employees to purchase plans that met the ACA’s benefit standards. The ACA bars dollar limits on coverage and mandates certain preventive procedures.
Note: Employers that planned on issuing cash payments to employees in lieu of providing coverage better not! The penalties are significant and the IRS is serious about imposing them.