Employer Payment Plans for Employees' Health Insurance

MN Health Staff Writer | May 11, 2015

New IRS Guidance has been released that will dramatically change the way small businesses help their employees pay for health insurance.


IRS Notice 2015-17 states that employers who offer employees reimbursements or pay premiums for employees' individual health insurance plans will be subject to a $100 per day per employee excise tax. The interpretation from the IRS is that any reimbursement or payment for employees' individual plans is actually a group health insurance plan, and because the payment is a group plan, it does not meet Affordable Care Act requirements for health insurance plans. Enforcement of this notice will go into effect July 1, 2015.


Below is a list of situations that would be non-compliant with notice 2015-17 and subject to a $100 per day per employee excise tax:

  • Company A allows each employee to purchase their own individual health insurance plan. The employee notifies the employer of the cost of their plan, and the employer adds 50% of that cost to their paycheck every month.
  • Company B pays each employee who purchases individual health insurance $200 per month for the purchase of their individual plan. If an employee is on a spouse's group plan or receiving M.A. or MNCare, the company does not pay that employee $200 per month.
  • Company C pays 100% of all employee premiums for individual plans from a company bank account.


There are two principal ways in which employers can provide relief for employees' health insurance costs and avoid the excise tax:

  • Employers can give all employees a flat salary increase to offset the cost of health insurance. Employers cannot give different increases to different employees, nor can they withhold a salary increase for employees who are on a spouse's group plan or other health insurance plan.
  • Employers can sponsor a group plan. The benefits of a group plan are a tax-free employer contribution and possible tax-free payments by employees.


Please contact a MNHI broker for questions on the best way to offer health benefits to employees!