Rev. Rul. 2014-15 - Employer-funded retiree health benefit arrangement is “insurance” under subchapter L 

May 8:  The IRS today released an advance copy of Rev. Rul. 2014-15 concluding that an arrangement—by which an employer funds its retiree health benefits through a wholly owned subsidiary—is insurance for federal income tax purposes, pursuant to subchapter L of the Code.

Rev. Rul. 2014-15 [PDF 25 KB] also concludes that the subsidiary qualifies as an insurance company.


An employer (a U.S. domestic corporation) provides health benefits to a large group of retired employees and their dependents.

The employer maintains a single-employer voluntary employees’ beneficiary association (VEBA) and makes a contribution to the VEBA to provide the health benefits. In turn, the VEBA enters into Contract A with an unrelated commercial insurance company (IC).

  • Contract A provides non-cancellable accident and health coverage.
  • Under Contract A, IC will issue quarterly reimbursements to the VEBA for medical claims that are incurred by the covered retirees and their dependents and paid by the VEBA.
  • Contract A is regulated by the relevant state insurance commissioner as an accident and health insurance contract.

To keep the premium payment under Contract A affordable, IC then enters into Contract B with the employer’s wholly owned subsidiary (S1).

  • S1 receives a premium and reinsures 100% of IC’s liabilities under Contract A.
  • Contract B constitutes S1’s sole business; S1 is regulated as an insurance company under state law; and Contract B is regulated as insurance.
  • The amount of premium under Contract B is determined to be at arm’s length under applicable insurance industry standards.
  • S1 has adequate capital to fulfill its obligations to IC under Contract B.
  • There are no guarantees that the VEBA or the employer will reimburse S1 with respect to its obligations under Contract B, nor is any of the premium received by S1 for Contract B loaned back to the VEBA or to the employer.

In all respects, the parties conduct themselves consistent with the standards applicable to an insurance arrangement between unrelated parties, except that S1 does not reinsure any other insurance contracts.

The questions presented in Rev. Rul. 2014-15 are:

  • Does this arrangement constitute insurance within the meaning of subchapter L of the Code?
  • If so, does SI qualify as an insurance company?

IRS ruling

Rev. Rul. 2014-15 concludes:

  • S1 is regulated as an insurance company under state law.
  • Contract B constitutes insurance.
  • Because Contract B is more than half of the business done by S1 during this year, S1 qualifies as an insurance company under subchapter L for the tax year.

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