Another unexpected consequence of the IRS’s interpretation of the interaction of the market reform rules and reimbursement of individual policies in Notice 2013-54, leading to a new temporary relief provision for premium reduction arrangements related to student health plans in Notice 2016-17. The Department of Labor later extended this relief until further guidance is issued in FAQs About Affordable Care Act Implementation Part 33 posted on the ESBA’s website.

The IRS describes the issue as follows:

Many colleges and universities provide students (typically graduate students) with student health coverage at greatly reduced or no cost as part of their student package, which often includes tuition assistance and a stipend for living expenses. The student health coverage can be provided either through individual health insurance or through coverage that is self-insured by the college or university. For these students, the bill they receive from the school for the health coverage premium may take into account a premium reduction arrangement. Because some of these students also perform services for the school (such as teaching or research), the question has been raised whether such premium reduction arrangements might be employer-sponsored group health plans, and, as a result, might be viewed as EPPs that violate market reform provisions of the Affordable Care Act. Whether a particular arrangement constitutes a group health plan will depend on all of the facts and circumstances.

Such an arrangement for a student that performs services for the institution would violate the market reform provisions of the Affordable Care Act as interpreted in Notice 2013-54. As such, the institution would be facing a $100 per day per participant penalty under IRC §4980D for having an employer sponsored plan in violation of the provisions of the Public Health Service Act (PHSA).

The original notice provided that no penalty will be asserted against such programs or a plan or policy year beginning before January 1, 2017. The relief is intended to give the institutions time to revise their programs to come into compliance with the requirements under the Affordable Care Act.

However, in October of 2016 the Department of Labor announced that this relief would be extended beyond the January 1, 2017 date until further guidance is issued. The Department explained the reason for this extension as follows:

Colleges and universities have premium reduction arrangements for graduate student health coverage that are often part of a large and complex admission offer and acceptance process. Additionally, Congress evidenced an intent in the Affordable Care Act to preserve the ability of institutions of higher education to continue offering student health insurance plans otherwise permitted under applicable Federal, State, or local law.