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

HRAs, POPs and tax free individual health insurance are 100% allowed in Idaho if administered the correct way.

Nothing in Idaho 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 Idaho 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 Idaho Insurance Statute 41-4704:

41-4704. APPLICABILITY AND SCOPE. With the exception of a health benefit plan subject to regulation under chapter 52, title 41, Idaho Code, and to the extent permitted by federal law, the provisions of this chapter shall apply to any health benefit plan delivered or issued for delivery in the state of Idaho that provides coverage to the employees of a small employer in this state if any of the following conditions are met: (1)  Any portion of the premium or benefits is paid by or on behalf of the small employer; (2)  An eligible employee or dependent is reimbursed, whether through wage adjustments or otherwise, by or on behalf of the small employer for any portion of the premium; (3)  The health benefit plan is treated by the employer or any of the eligible employees or dependents as part of a plan or program for the purposes of section 162, section 125 or section 106 of the United States internal revenue code.

Individual policies reimbursed by ZanePOP cannot be made subject to the requirements of Statute 41-4704 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 Statute 41-4704 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 Statute 41-4704 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.