Individual Policies Subsidized by Employer?

[2112Greg]

If a company didn't want group insurance (too costly, too much trouble) and they wanted to help each person who works there pay for an individual policy, what's the harm? The company wouldn't be paying the whole bill and each person who opted for coverage would be paying out of their own bank accounts, they would receive a small sum while they maintained coverage to help with the premium...is there a legal problem with this?

Am I missing somehting?

 

[moonlightandmargaritas]

There's absolutely nothing wrong with it. as long as it's structured correctly.

More and more companies are doing this due to the high cost of employee group health benefits, and the costs of buying and administering the plans.

The best bet is to reimburse employees through an HRA or Health Reimbursement Arrangment. Tax deductible for the employer, non-taxable income to the employee.

 

[somarco]

The employer can also make a contribution to the employee HSA if they have a qualified HDHP. Works similar to the HRA but with fewer moving parts.

 

[2112Greg]

OK, that's what I was thinking. I actually did suggest an HRA to them, but they really just want something simple and with as few administrative issues as possible, so they opted to have each person set up their indiv health plan and 'reimburse' each employee (to a certain limit) by them having provide proof of continued coverage.

I thought the easiest way to set that up would be to have the bill sent to their office...that way the employer knows that each person's plans are still in effect and can issue the reimbursement.

I think I was thinking of a list bill and got that mixed up with a straightup individual plan. At least Golden Rule has a stipulation that there can be no such reimbursement (wage adjustment or otherwise) on a list bill setup.

Thanks guys...I always appreciate the input! Tomorrow will be a very good day...!

 

[somarco]

All carriers prohibit employers from paying a portion of the premium. They can bonus the money and run it through the tax mill, use an HRA, or simply make contributions to the HSA on behalf of the employee and avoid the tax issues.

Money placed in the HSA belongs to the employee but is a direct write off against their wages when they file their tax return.

 

[wilkin]

What about discrimination issues? Contributions to an HRA or HSA must be equal to all employees, correct?

 

[moonlightandmargaritas]

While there are non-discrimination IRS rules that pertain to HRA's, they are pretty liberal. Most have to do with "highly-compensated" owners and officers, not rank and file employees - there are many circumstances (less than 3 years of service is one) where they CAN be excluded, if desired.

 

[TXINSURANCE]

I think an employer paying employees individual premiums is illegal in some states

 

[2112Greg]

TX, how about Texas...as that's where we are on this one. Legal here?

It may be something of a loophole, but the premiums aren't being paid directly by the employer. The employee will be getting a wage adjustment for the time that they keep their health plan. It's uniform for all employees, which should be OK for non-discrimination purposes.

 

[moonlightandmargaritas]

There are no "non-discrimination" issues. You don't have any kind of formal plan. The employer does though open themselves up to the possibility of civil litigation from someone who is not included for whatever reason.

In most states, the carrier wants to get acknowledgment that there is no payment by the employer so as not to construe it as being under the "group health insurance" statutes for whatever state.

It should be done as either an HRA (they're reimbursing anyway) which costs about $100 to set up. The employees will save anywhere from 15-25% because the reimbursement is TAX-FREE.

OR, as Bob (somarco) states let the employer make DEDUCTIBLE contributions to the ee's HSA (if they choose a HDHP). They are NON-TAXABLE to the ee.

If you are going to get involved in situations like this, it makes sense to learn how to read the IRS regs (thank goodness a mentor of mine taught me this). Not only can you give good advice to your client, accountants will take notice of your credibility and refer EASY, PROFITABLE cases to you.