Individual Mandate Regulations Finalized

hsaEven though Congress and the President are deadlocked in a battle over the individual mandate and other aspects of the Affordable Care Act (ACA), the IRS has finalized regulations for the shared responsibility payment due from those who do not maintain minimum essential coverage beginning in 2014.

The regulations confirm that individuals who choose not to enroll in a health insurance program will have to pay a penalty of $95 per person, per year, or 1% of income, whichever is greater. This penalty increases to $325 per person or 2% of income in 2015 and the greater of 2.5% of income or $695 in 2016.

Key Changes

The most significant changes were decisions confirming that a plan offered by an employer to an employee includes a plan offered on behalf of an employer by a third party. These include union-sponsored health plans, multi-employer plans and plans provided by a professional employer organization or employee leasing company.

The rules also clarified that self-insured group health plans were also deemed to be eligible employer-sponsored plans, regardless of whether the plan could be offered in the large or small group market in a state.

Reform and POP Plans

According to a review of Section 125 Premium Only Plan regulations, these plans, often referred to as POP Plans, will remain effective at reducing tax liabilities for both employers and participating employees. These plans have long been used to allow employees to pay their portion of health insurance premiums with pre-tax dollars, thereby lowering their tax liability and cutting costs.

Employers have traditionally saved between 7.65% and 10% of the amount set aside by participating employees by eliminating their matching portion of federal unemployment (FUTA) and social security (FICA) taxes. Plan documents and summary plan descriptions are still required by the IRS and Department of Labor in order to allow the pre-tax deductions.

To view other articles from the SIP Fall Newsletter, please click here.

In cooperation with NAEBA

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