Can Employers Reimburse Employees for Coverage Purchased on the ACA Exchanges?

[NWBenefitProvider]

This is too vague. CPA's are still advising its illegal. Why take the risk?

I agree with Kgmom. It has been very clear that the intent of the government is to do away with the pre-tax contributions towards individual plans. The company I had been looking to work with, Lyfebank thought they found a way through, but just this July finally conceded that there was no longer any way to eek by any longer without facing huge risks.

Furthermore, some carriers are starting to file employee only rates so that businesses can have a regular group plan, yet still allow family members the ability to qualify for subsidized plans on the exchanges. Not 100% great for all groups, but there are a lot of options out there right now and it's our job to find what works.

I think it's a bit of a bummer to have to pay the tax on an employer contribution, but come on, would you rather get nothing? I'm sort of sick of everyone whining. (not agents, just employees who may have to actually pony up for coverage) No one is paying for any part of my insurance.

 

[RayNY]

I like the "may not know if it's illegal until they try it" line.

"Oh, I'll just try paying this way, it's only $36,500 in fines, per employee, if I'm wrong."

Thank god I didn't allow a single client to do this.

You're a group? Here's group plans.
You don't want to pay that much? Do a contribution, here's the least you can do.
You don't want to pay that much either? Drop them and let them go as indivs.

 

[Ann H]

I like the "may not know if it's illegal until they try it" line.

"Oh, I'll just try paying this way, it's only $36,500 in fines, per employee, if I'm wrong."

Thank god I didn't allow a single client to do this.

You're a group? Here's group plans.
You don't want to pay that much? Do a contribution, here's the least you can do.
You don't want to pay that much either? Drop them and let them go as indivs.

RayNY, I can always count on you to do clean and clear business. And I count on you for your knowledge, too. I read every one of your posts with enthusiasm because I know I will come away more knowledgeable.

It is interesting that this Forbes article talks about how employer-paid IFP may be construed as group insurance especially if the employer pays the exact amount of the premium. I heard that some states make it illegal for employers to pay the IFP premium at all (like Texas, I believe). If the employer wants to drop group insurance and help employees with their IFP premiums, then the cleanest way may be to give a taxable raise to every employee (whether they came from the group plan or not), and to not dictate that they must use it for health insurance.

 

[RayNY]

Ann,

Thank you, you're a wealth of knowledge as well (and you have some super-human skill at keeping this mess untangled).

I have the exact same understanding that you do on this subject as far as what is permissible. I'd much rather be safe than sorry on this one, companies that can't swing the premium in the first place certainly can't handle the penalty.

 

[tonyisme]

My CPA in Az says its illegal to reimburse any part of an employees premium since Jan 1 2014....

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More employers moving their operations beyond USA borders. :o ....the bottom line.
Rosetta Stone spanish lessons kits flying off the shelves at Best Buy and elsewhere.

 

[yorkriver1]

My large FMO says the same thing as RayNY and Ann, best compliant way to assist employees if dropping the group plan is to give taxable raises.
The last two people I helped who were employees of companies that dropped their plan were not wisely using the salary increase money, or very well equipped to make choices. Neither qualified for a subsidy, and was used to having the employer make most of the choices be passive to them, and not really pay attention to the weekly/bi-weekly deduction. Suddenly, when they have to pay a monthly lump sum, especially if older/on family coverage, they are like deer in the headlights, even with, say, a $500/mo. raise from ER.
I don't do much group, mostly Medicare and IFP's, but I do have a few groups. Not advising them to drop coverage. Will look at giving EE's matching contriubtions up to a $50-100 amount to go to HSA option.
re: the ways to change ER contribution practices: It is illegal in my state for ER to pay EE IFP premium.

 

[RayNY]

York,

It requires a bit of extra explaining (and generally, you have to fill out an extra line on the application with a number), but defined contribution sounds like the best solution to your situation.

Not subsidy eligible, so no real savings on premium doing what you described. ER can contribute what they are comfortable with ($500/mo/employee) and the employee can then choose the plan that fits their needs. If it's cheaper, it's free to the EE. If it's more expensive, the difference is withdrawn from pay, pre-tax (and totally legal since it's a true group plan). This also helps resolve the issue of EE's not being equipped to make these decisions-the ER and broker would offer a few select options for them to choose from, not the entire menu.

It just seems to resolve all the problems you described while providing the same benefits.

 

[Ann H]

Agreed, Yorkriver and RayNY. Defined contribution is a great idea. HSAs are great ideas. But it's so hard to explain when the employees have been accustomed to having the Employer make the Defined Benefit choices.

Doing GROUP Defined Contribution (which is basically just multi-choice on a group platform) allows you choice and pre-tax dollars. Sometimes an employer doesn't want group headaches at all anymore, or else they want employees to access subsidies. In that case, the next best way to preserve employer dollars in the game as well as save tax dollars is the HSA idea.

There still remains a tax deduction for HSA contributions. Employers are allowed to contribute for the savings portion of the HSA (not for the insurance premium!), even if it's IFP and even if the employee gets a subsidy. Once again, if it's IFP, it's best to give a taxable raise, then let the employee tax-deduct the HSA contribution on their own tax return. This removes the issue of turning it into a GROUP benefit plan, and if it's done on a non-discriminatory basis it's my understanding that it is clean. However, for IFP, that means the employee still pays FICA tax (7.65%) on the raise, and are only able to tax deduct it for Federal and State tax. It still might be better than true group insurance, if employees need to access subsidies.

The problem that I find with this scenario is that it is so hard to explain to rank and file employees. Only employees with some financial acumen really understand it. Another problem is that employees accessing subsidies (especially CSR) don't always buy a QHDHP when they go to the exchange. Some of those CSR plans are based on a Silver HSA HDHP, but the deductible is reduced so much that it no longer qualifies as an HDHP for an HSA. So, the employee accessing subsidies buys a non-QHDHP, and then the employer's "raise" can't be taxed deducted.

 

[russelltw]

NC enacted Small group reform, which makes it illegal for a company to pay premiums for an individual plan.

Employers want to make sure the employees use the raise for health coverage, but by giving the raise the employer loses that ability to control that money. If Bob wants to use the raise for a new motorcycle payment, that's Bob's decision and the employer cannot do anything about it.

 

[mudhound]

This is too vague. CPA's are still advising its illegal. Why take the risk?

We are doing the same. Not worth the risk at all!

Those GOV people are stupid on a stick.