<img src="//bat.bing.com/action/0?ti=5067266&amp;Ver=2" height="0" width="0" style="display:none; visibility: hidden;">
BUY NOW

Small Business Employee Benefits and HR Blog

Tax Free Individual Health Insurance in Indiana Using HRAs, POPs and Payroll Reimbursement Arrangements

indiana hraHRAs, POPs and tax free individual health insurance are 100% allowed in Indiana if administered the correct way.

Nothing in Indiana insurance code restricts an employer (small or large) from offering HRAs and POPs that reimburse individual health insurance plans. HRAs and POPs are federal plans that are not regulated by the Indiana Department of Insurance.

However, there exists confusion with regard to the state insurance code that regulates insurance companies insuring small employers (i.e. companies with 2-50 employees). It is important to realize that the insurance code applies to insurance companies and does not restrict a small employer from offering employees the ability to reimburse themselves for individual health insurance costs tax free.

According to Indiana Insurance Code Section 27-8-15-1:

IC 27-8-15-1

Application of chapter

     Sec. 1. This chapter applies to any individual or group health insurance plan that is issued for delivery in Indiana to at least three (3) employees of a small employer located in Indiana if one (1) of the following conditions is met:

        (1) Any part of the premium or benefits is paid by a small employer or any covered individual is reimbursed, whether through wage adjustments or otherwise, by a small employer for any part of the premium not including the administrative expenses of administering a payroll deduction plan where the employee contributes one hundred percent (100%) of the premium without reimbursement.

        (2) The health benefit plan is treated by the employer or any of the covered individuals as part of a plan or program for purposes of Section 106 or 162 of the United States Internal Revenue Code.

Individual policies reimbursed by ZanePOP cannot be made subject to the requirements of Section 27-8-15-1 because, with ZanePOP:

  1. The employer does not pay a portion of the premium or benefits for the individual health insurance policy.
  2. The employer does not reimburse the employee for any portion of the premium. 
  3. The employer/employees do not treat specific individual health insurance plans as a part of a plan or program for purposes of Section 106, Section 125 or 162.
  4. The employer never uses employee payroll deduction to pay for an individual health insurance policy.

The non-applicability of Section 27-8-15-1 to individual policies reimbursed by ZanePOP should be straightforward. Please post questions in the comment section.

Similarly, individual policies reimbursed by ZaneHRA cannot be made subject to the requirements of Section 27-8-15-1 because, with ZaneHRA:

  1. The employer does not pay a portion of the premium or benefits for the individual health insurance policy.
  2. The employer does not limit reimbursement to specific individual health insurance premiums and never knowingly or directly reimburses individual health insurance premiums.
  3. The employer/employees do not treat specific individual health insurance plans as a part of a plan or program for purposes of Section 106, Section 125 or 162.
  4. The employer never uses employee payroll deduction to pay for an individual health insurance policy.

The ZaneHRA itself is the "Plan", not the health care items reimbursed by the "Plan". In other words, ZaneHRAs are qualified ERISA- and HIPAA-compliant employee welfare benefit plans. However the medical items (e.g. pharmacy, insurance policy costs, doctor visits, etc.) for which each employee chooses to seek reimbursement from their ZaneHRA, are not part of an employee welfare benefit plan.

The federal government has guidelines for employers who want to allow insurers or their representatives access to their employees without triggering ERISA plan status and the associated liabilities. ZaneHRA is designed to comply with these guidelines.

Compliance includes the following restrictions on the actions of employers:

  1. Employers must not be involved in employees' decision to purchase individual health insurance, or their decision on which insurer or plan to use. They must not get involved in any negotiations with an insurance carrier over price or benefits of individual health insurance plans, and must not provide employees with claim forms or other materials related to their individual health insurance policies.
  2. Employers may not directly pay premiums on individual health insurance policies. They must not receive any compensation from an insurance carrier in connection with an employee's individual health insurance policy. Employers must not become involved in any claim dispute between an employee and an insurance carrier; all inquiries must be directed to the insurer.

To comply with point (1) above, while still making contributions to an HRA that can reimburse for individual health insurance premiums, employers must follow these additional guidelines:

  1. Employers must not pressure employees to use the money in their HRA to pay for individual insurance coverage. Employers may require HRA participants to have health insurance coverage to participate in their HRA provided this requirement is waived for participants medically unqualified to obtain health insurance (e.g. rejected, uprated, excluded).
  2. In addition to reimbursing for health insurance premiums, employers should also allow the use of HRA funds for qualified medical expenses.
  3. Employers must limit their role to simply reimbursing qualified medical expenses as directed by the ZaneHRA plan.
hra-whitepaper-101