The Affordable Care Act (ACA), with its massive-and-growing-bigger-by-the-day tail of regulations, proposed regulations and other guidance, has created its share of unintended consequences.
One of those consequences has fallen hard on health insurance stipends and reimbursements, provided by many colleges and universities to their graduate student employees to help the students defray the cost of medical coverage. By “fallen hard” we mean federal regulators have interpreted the ACA to outright prohibit these stipends and reimbursements. Recently, however, federal agencies softened the blow ever so slightly by giving these arrangements a brief reprieve.
The stipends are a problem under the ACA due to a collision between two wholly unrelated rules, one issued by the IRS and one by the Department of Health and Human Services (HHS). While we may never know for sure, it seems likely the two agencies gave no thought to how their respective rules, when considered together, would eviscerate a very common and generous practice by institutions of higher learning.
Lockton comment: In this the matter resembles that day in high school chemistry class when I unwittingly mixed hydrogen peroxide and sulfuric acid. Boom!
Ok, I never actually did that. It just sounds like a really bad idea, because it has the words “hydrogen” and “acid” in the same sentence. Truth be told, I never took chemistry in high school. Or college. It looked hard.
HHS regulates how the ACA affects the insurance marketplace, including the individual health insurance marketplace. Back in 2012, HHS issued rules addressing requirements for student health insurance. That guidance referred to such insurance as a form of individual market coverage, to ensure the coverage met certain minimum standards applicable to the broader individual health insurance marketplace. Fair enough.
A year later the IRS issued guidance basically prohibiting employer-provided arrangements, including health reimbursement arrangements, which reimburse employees for individual market premiums. The idea was to prevent employers from encouraging employees to jump into the public health insurance exchanges by paying all or a portion of the premium for individual coverage.
Boom! Because the HHS rule scooped up student health insurance in the definition of individual market coverage, the IRS rule barring employers from contributing to the cost of individual market coverage effectively prohibited colleges and universities from offering health insurance stipends or reimbursements to student employees (typically, graduate students working as teaching assistants or performing other services).
Lockton comment: The IRS prohibition does not affect student health insurance supplied to non-employee students.
The potential penalties are bad…as high as $100 per day, per affected employee.
So, earlier this month the IRS issued an announcement on the matter. It didn’t say “never mind,” but it gave colleges and universities additional time to figure out how best to help their graduate students without violating the rules regarding employer subsidies for individual market coverage. The brief free pass applies to premium stipends and reimbursements related to an insured or self-insured student health insurance plan, through the end of the plan’s policy year or plan year beginning in 2016. So, for example, the free pass would apply until Aug. 31, 2017, with respect to a plan or policy year beginning Sept. 1, 2016.
The reprieve eases the minds of college and university legal counsel and benefit managers with respect to the apparent past inadvertent transgressions, but will require them to come up with an alternative method for helping the graduate students. Perhaps the most straightforward approach will be a modest pay raise for all graduate student employees. Those who wish to use the extra cash to pay for health insurance may do so, and those who do not may use the cash for other things.