My client is setup as a single member LLC. They have a medical expense reimbursement plan (MERP) in place to cover the owner's spouse, who is also an employee. The company recently hired another full-time employee and they're wondering if the plan now violates the provisions of the Affordable Care Act (ACA)? The company doesn't intend on reimbursing the other full-time employee.

ANSWER

The BIDaWIZ Team's Answer:

In most instances, a medical reimbursement plan (MERP) that covers more than one employee violates the Affordable Care Act. However, if the MERP plan is only for one employee, then there would generally not be a violation.

The other separate factor to consider is whether or not the plan has a discrimination violation for including one employee in the medical expense reimbursement plan, but not the other. This is evident in the eligibility and benefits rules as per IRC Section 105(h). The details of these rules include certain exceptions. For instance, if the other employee has less than 3 years of active service at the beginning of the plan year, it would satisfy the non-discrimination clause as per IRC Section 105(h). Thus, there would be no violation.

Please note that this new FT employee cannot be part of the Section 105 plan and this exception will not last if/when the FT employee completes 3 years of service.

References: IRC Section 105(h); IRS Notice 2013-54
State: New York