Many small business owners in search of cost-effective health insurance for their employees are turning to an individual health insurance reimbursement plan. While these plans allow employers to take advantage of less expensive individual insurance rates on the health insurance marketplace, staying compliant is an important part of avoiding fines of up to $100 per employee, per day.
Reimbursement Plans As a Group Health Plan
Under the Affordable Care Act, employers are not required to offer insurance to employees until the company employs more than 50 people that meet full-time standards. If the company has fewer than 50 employees, they may opt to provide some type of health care coverage, although group plans are often expensive.
Many employers turn to a compliant individual health insurance reimbursement plan. These plans are a different form of a group plan, in which the employers pay the pre-tax wages to the insurance company to pay for the coverage.
Employer reimbursements for health insurance are essentially employer contributions excluded from payroll and income taxes. As the money is considered a contribution by the employer, the plan is considered a group health plan.
A compliant health insurance reimbursement plan must also provide preventive services to employees in order to meet the regulations of the ACA. Whether the employee is purchasing insurance outside or inside the Exchange, the employer can reimburse for certain health care costs using tax-free dollars. In order to remain complaint with Market Reforms, the employer can only offer reimbursement amounts for preventive services and health insurance premiums.
Why Are Contributions Tax-Free?
A health reimbursement plan allows employers to reimburse amounts paid for basic preventive services and insurance through IRS Code 105. These costs are not included in the gross wages of the employee and are received tax-free in order to offer additional savings to the employee.
Premium Tax Credits for Employees
The federal government offers premium tax credits for some of those who purchase insurance through the health insurance marketplace, or Exchange. When an employer reimburses the employee for preventive service and premium costs, the employee is still eligible to take advantage of premium tax credits to afford additional savings, as long as the additional requirements are met under the ACA.
An individual health insurance reimbursement plan is a good option for companies with fewer than 50 employees that want to offer some type of insurance coverage to their valued workers. But, staying compliant is critical. By ensuring you are following the above guidelines, you can feel confident in your choice of health benefits for your employees.
What questions do you have about compliant health insurance reimbursement plans?