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 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 notice provides 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.