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Small Business Employee Benefits and HR Blog

Are You Reimbursing Employees' Health Insurance Correctly?

April 30, 2015
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As more and more employees purchase health insurance coverage on their own, it is common for businesses - especially small businesses - to help employees with their premium cost. If this sounds familiar, you've likely asked yourself, "Are we reimbursing employees’ health insurance correctly?" The answer? Read on.Chart - Reimburse Employees Health Insurance

Note - This article is from our new reference chart, Are We Reimbursing Employees’ Health Insurance Correctly? To download the full resource, click here.

Do We Have a Formal Reimbursement Plan?

The first question to ask is, do we have a formal reimbursement plan in place?

When you have a formal reimbursement plan, your business has official plan documents outlining how the reimbursement plan works. A formal reimbursement plan is a type of group health plan. In many cases, reimbursements are tax-deductible to the business and received tax-free by employees.

Common types of formal reimbursement plans include:

If yes, you have a formal reimbursement plan...

Does the Reimbursement Plan Comply with the New Market Reforms?

As of January 1, 2014, the ACA introduced new Market Reforms that impact all group health plans, including reimbursement plans. To comply with the Market Reforms (PHS Act 2711 and PHS Act 2713), reimbursement plans must: 1) Not place an annual or lifetime limit on Essential Health Benefits, and 2) Cover basic preventive care 100%.

Types of reimbursement plans that generally comply include:

Types of reimbursement plans that generally do not comply include:

  • Stand-alone Health Reimbursement Arrangements (HRAs), with two or more participants

  • Employer Payment Plans

If Yes - If the plan complies with the new Market Reforms, no action is needed. Your arrangement complies.

If No - If the plan does not comply, adopt a compliant plan (ex: ZaneHealth) by June 30, 2015 to avoid penalties.

If no, you do not have a formal reimbursement plan...

Are you Reimbursing Employees Directly, or Paying for Employees’ Premiums Directly?

If Yes - If you are reimbursing employees directly or if you are paying for employees’ premiums directly to the insurance company, this is considered a type of “Employer Payment Plan.” Under the new Market Reforms, Employer Payment Plans are out of compliance. Adopt a compliant plan (ex: ZaneHealth) by June 30, 2015 to avoid penalties.

If No - If you are providing a bonus or stipend (taxable), no action is needed. Your arrangement complies.

Related - Health Insurance Stipend vs. A Reimbursement Plan - Which is Better?

Conclusion

Businesses all over the nation are reimbursing employees’ for their individual health insurance, as an alternative to purchasing group health insurance. With new rules and regulations, however, you need to go about it the right way to avoid costly fees and penalties.

Do you have additional questions about reimbursing employees health insurance? Download the full flowchart and Q&As here, or leave a comment below and we’ll help answer.

 

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