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Small Business Employee Benefits and HR Blog

FAQ - Can We Help Employees with Their Marketplace Health Plans?

December 9, 2014
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As more and more employees enroll in health plans through the Health Insurance Marketplaces, it is common for small business owners, CEOs, and HR professionals to ask, "can we help employees with the the cost of their Marketplace health plans?"billboard-pixabay

If you've asked yourself this question, you are not alone. There are over 3.3 million small businesses in the U.S. that do not provide traditional health insurance to their employees - primarily because of cost.

The good news is that employees can now purchase affordable health coverage on the individual Health Insurance Marketplaces that is just as good as, if not better than, traditional employer-provided health insurance.

And because of the new advantages of individual health insurance, and the unsustainable cost of employer-provided health insurance, most small businesses are adopting programs to help employees with the cost of their Marketplace health plans - instead of contributing to a group health insurance plan.

At the same time, it is common to have questions about how to help with employees' Marketplace plans in "the right way." Here are two viable options for helping employees with their health plans.

Two Options for Helping Employees With Their Marketplace Health Plans

There are two primary options for helping employees with their Marketplace health plan: a health insurance stipend and a reimbursement plan.

Option #1: Health Insurance Stipend

With a health insurance stipend, all similarly situated employees receive a fixed, taxable stipend to purchase individual health insurance, whether or not they actually purchase health insurance. The employee's monthly contributions are typically added to his or her paycheck. At the end of the year, employees receive a form showing the amount of their stipend that they should report as income on their personal income tax return.

   Pros:

  • Not a group health plan
  • No compliance issues
  • Very simple and easy administration (automatic payroll additions)

 

Cons:

  • Company is required to pay payroll tax on reimbursements (7.65%)
  • Employees must claim reimbursements as income (20-40%)
  • Employees receive money regardless if they use it toward a health insurance premium

Option #2: Reimbursement Plan

With a reimbursement plan, all similarly situated employees are granted a fixed allowance amount to purchase individual health insurance, but only receive money if they actually purchase health insurance. Employees purchase their own individual health insurance policy and submit proof to their employer (or the employer's third-party provider). Employees receive monthly reimbursements up to their allowance amount that are typically added to their paycheck tax-free (optional).

   Pros:

  • Employees must show expense before reimbursement
  • Feels like a real, structured health benefits program
  • Tax-free optional to employees (20-40%)
  • No payroll taxes optional for employers (7.65%)

Cons:

  • It is a group health plan *
  • Employer must take steps ensure compliance with group plan rules

 

 

 

* A reimbursement plan is a group health plan, and is subject to compliance with IRS, ERISA, HIPAA, ACA Market Reforms, and other applicable rules. To make sure your arrangement is compliant, and to make compliance easy, use a Reimbursement Software Provider. A good software provider will have a paperless plan setup, seamless payroll integration, online reimbursement request submission, fast claim processing, and real-time notification through every step of the reimbursement process… making it easy for your HR manager and for your staff.

Regardless if your small business uses option 1 or option 2, your small business has a way to help employees with their Marketplace health plans, and provide a valued health benefit.

Questions? Leave a comment below.

 

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