New Restrictions on Employer-Provided Medical Expense Reimbursement Plans

The IRS issued Notice 2013-54 on September 13, 2013, eliminating the opportunity for employers to reimburse most medical costs in all but limited circumstances. The change is effective for plan years beginning on or after January 1, 2014. The notice eliminates an employer’s ability to use a stand-alone medical reimbursement plan, health reimbursement arrangement (HRA), or other tax-favored arrangements, such as a cafeteria plan, to help employees pay for individual health insurance policies or other out-of-pocket medical costs.


“The notice does this by pointing out that these arrangements would fail to satisfy the Affordable Care Act’s (ACA) market reform provisions requiring no dollar limits on essential health benefits and no-cost preventive health services,” says Andy Biebl, a tax principal at CliftonLarsonAllen.
For example, the market reforms prohibit any limit on certain essential health benefits. But stand-alone Section 105 plans limit the amount for which an employee may seek reimbursement. The sanction for violating these rules is a punitive $100-per-day, per-employee penalty, or $36,500 per participant per year — effectively a total prohibition.