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Small Business Employee Benefits and HR Blog

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

tax free individual health insurance coloradoHRAs, POPs and Tax-free Individual Health Insurance premiums are 100% allowed in Colorado if administered the correct way.

This blog post will address the concerns raised by the infamous 2009 Colorado Department of Insurance (DOI) Bulletin No. B-4.32

Since the issuance of this bulletin, the Colorado DOI has confirmed that HRAs are allowed in Colorado. Specifically:

    1. HRAs are legal for employers of all sizes and the DOI does not regulate employers (or HRAs). 
    2. An individual employee who has an HRA can buy individual health insurance and receive reimbursement from an HRA for the premium. However, depending on how the HRA is administered, the individual policy may be subject to small group law as explained in Bulletin No. B-4.32.
    3. As long as insurance agents explain items 1-3 (above) to their clients, they will comply with Colorado insurance regulations with respect to HRAs and individual health policy reimbursement.

According to the Bulletin No. B-4.32:

"Existing law requires that the provisions of Article 16, including the requirements of §10-16-105.2, C.R.S., apply if any of the following circumstances exist:

    1. Any portion of the premium or benefit is paid by or on behalf of a small employer;

    1. An eligible employee or dependent is reimbursed, whether through wage adjustment or otherwise, by or on behalf of a small employer for any portion of the premium;

    1. 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 106 [employer contribution to accident and health plans], 125 [cafeteria plans], or 162 [trade or business expenses] of the federal “Internal Revenue Code of 1986,” as amended, except if no contribution is made by the employer to the section 125 plan or program, the employer does not have in place an employer-sponsored health benefit plan or program, and the employer does not pay for any portion of the premium or benefit paid; or

    1. The plan is marketed to individual employees through an employer or at a place of business, except as otherwise allowed by rule."


Individual policies reimbursed by ZanePOP cannot be made subject to the requirements of $10-16-105.2 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 a specific individual health insurance plan as a part of a plan or program for purposes of Section 106, 125, or 162; and
    4. The agent markets individual policies with the permission of the employer (which is allowed by rule)
The non-applicability of Bulletin B-4.32 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 this regulation 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 reimburses individual health insurance premiums;
    3. The employer/employees do not treat the individual health insurance plan as a part of a plan or program for purposes of Section 106, 125, or 162; and
    4. The agent markets individual policies with the permission of the employer (which is allowed by rule).
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.
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