June 14, 2010: A newly-released SHARE issue brief explores the impact of the Patient Protection and Affordable care Act ("PPACA") on the legality of having employees purchase individual health insurance on a pre-tax basis under section 125 of the tax code.
Prior to passage of PPACA, the legal debate surrounding section 125 plans hinged on whether the use of such plans would violate the non-discrimination requirements of HIPAA. This was because different employees of the same employer could be treated differently with respect to premiums, eligibility, and benefits, since section 125 plans--even when made available through an employer--are used to purchase individual health insurance policies.
The new brief, based on Mark Hall's SHARE-funded research, makes the case that PPACA allows for the continued use of section 125 plans (albeit outside of an exchange) and points out that PPACA's guaranteed issue provisions and restrictions on medical underwriting should reduce concerns about discrimination based on health status. However, author Amy Monahan notes that PPACA is not explicit on either of these issues, and she calls for clear guidance from federal regulators, arguing that the pre-tax payment of insurance premiums will continue to be an important affordability issue after PPACA is implemented.
This new brief is a companion to a January 2009 report by Mark Hall's research team analyzing the legality of states requiring employers to offer section 125 plans. Click here to read the earlier brief, "Section 125 Plans for Individual Insurance and HIPAA's Group Insurance Provisions."