Did You Know You Can Reimburse Your Employees for Individual Health Insurance?

[LGilmore]

You gave "yourself" a thumbs up?

 

[sman]

To clarify, this type of reimbursement plan is an ERISA group health plan, but it is not a group health insurance plan. As such, it is not considered minimum essential coverage and does not disqualify employees and dependents from the premium tax credits. In other words, an employee could purchase individual health insurance from the Marketplace, access subsidies, and be reimbursed for the non-subsidized portion of their premium. Best regards, Christina

Can you point to the section of the IRC which allows an employer to reimburse the employee for an on exchange plan? How about a Private Ruling Letter?

 

[taterpeeler]

You gave "yourself" a thumbs up?

if I give myself a thumbs up I have to go potty

 

[sman]

if I give myself a thumbs up I have to go potty

And wash your thumb.

 

[scagnt83]

A couple things to add here after some more research.

An employer may make an across the board bonus of the same amount per employee, which that employee can choose to use for individual coverage. However, this does not constitute MEC for that employer or allow them to avoid the penalty if applicable.

They can also voluntarily opt for the employer to use that bonus to contribute towards an individual health policy on a list bill basis. However, this is a bit of a grey area.

Here is a little light reading if you are interested: http://www.ecfc.org/files/ECFC_Employer_Brief-IM_Policy_Arrangements_2014_08_18.pdf


In regards to the Zane Benefits pitch (dont you guys love it when someone posts a link to qualify their comments and you have to enter your email to access it ):

The DOL has issued warnings/guidance that the exact pitch of using a 105 Plan for the employer to pay premiums and the employee to still get premium credits is a violation of "PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code."

They even warn about "some vendors" who are marketing these set-ups to insurance agents and employers....

Here is the full text of the DOL statement:

Q3: A vendor markets a product to employers claiming that employers can cancel their group policies, set up a Code section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies, and allow eligible employees to access the premium tax credits for Marketplace coverage. Is this permissible?
No. The Departments have been informed that some vendors are marketing such products. However, these arrangements are problematic for several reasons. First, the arrangements described in this Q3 are themselves group health plans and, therefore, employees participating in such arrangements are ineligible for premium tax credits (or cost-sharing reductions) for Marketplace coverage. The mere fact that the employer does not get involved with an employee's individual selection or purchase of an individual health insurance policy does not prevent the arrangement from being a group health plan. DOL guidance indicates that the existence of a group health plan is based on many facts and circumstances, including the employer's involvement in the overall scheme and the absence of an unfettered right by the employee to receive the employer contributions in cash.(12)
Second, as explained in DOL Technical Release 2013-03, IRS Notice 2013-54, and the two IRS FAQs addressing employer health care arrangements referenced earlier, such arrangements are subject to the market reform provisions of the Affordable Care Act, including the PHS Act section 2711 prohibition on annual limits and the PHS Act 2713 requirement to provide certain preventive services without cost sharing. Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code.

Also, BCBS of SC just sent out a notice about this and is no longer accepting premium payments from sec.125 plans. They will still accept list bill arrangements provided they are post-tax, voluntary, & HIPAA compliant. But they say nothing about sec.105 plans...


Now if the Zane Benefits girl has links to DOL or IRS guidance that contradict this I am all ears... hopefully they will not require us to enter an email and be put on their mailing list...

 

[sman]

A couple things to add here after some more research. An employer may make an across the board bonus of the same amount per employee, which that employee can choose to use for individual coverage. However, this does not constitute MEC for that employer or allow them to avoid the penalty if applicable. They can also voluntarily opt for the employer to use that bonus to contribute towards an individual health policy on a list bill basis. However, this is a bit of a grey area. Here is a little light reading if you are interested: http://www.ecfc.org/files/ECFC_Employer_Brief-IM_Policy_Arrangements_2014_08_18.pdf In regards to the Zane Benefits pitch (dont you guys love it when someone posts a link to qualify their comments and you have to enter your email to access it ): The DOL has issued warnings/guidance that the exact pitch of using a 105 Plan for the employer to pay premiums and the employee to still get premium credits is a violation of "PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code." They even warn about "some vendors" who are marketing these set-ups to insurance agents and employers.... Here is the full text of the DOL statement: Also, BCBS of SC just sent out a notice about this and is no longer accepting premium payments from sec.125 plans. They will still accept list bill arrangements provided they are post-tax, voluntary, & HIPAA compliant. But they say nothing about sec.105 plans... Now if the Zane Benefits girl has links to DOL or IRS guidance that contradict this I am all ears... hopefully they will not require us to enter an email and be put on their mailing list...

I get the feeling we won't see that info from the folks at Zane. I've asked for documentation multiple times and have yet to see any proof to back up what she is claiming.

 

[scagnt83]

I get the feeling we won't see that info from the folks at Zane. I've asked for documentation multiple times and have yet to see any proof to back up what she is claiming.

Technically at first you could do what they are pitching. But then the IRS issued new guidance to close this loophole and created a Safe Harbor period for existing set-ups.

At first the guidance seemed to be just directed at pre-tax situations such as a cafeteria plan. But then they furthered the guidance it seems to include post-tax as well.

Again, if it is done with a flat cash bonus and it is voluntary for the employee to use that bonus for health premiums then it is fine and the employee can still get tax-credits.

But as i showed in my post, the DOL has specifically called out sec.105 plan setups as disqualifying the employee from tax credits. In their words:
"does not prevent this arrangement from being a group health plan".
"Such employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, will violate PHS Act sections 2711 and 2713, among other provisions, which can trigger penalties such as excise taxes under section 4980D of the Code."

That doesnt mean the employee will be denied credits when they sign up... it just means that if the employer is ever audited it would not only affect the company but all of the employees could receive a tax bill demanding the tax credits back since they technically were ineligible.... which I think could be a huge lawsuit against the employer...

 

[FLM2]

That doesnt mean the employee will be denied credits when they sign up... it just means that if the employer is ever audited it would not only affect the company but all of the employees could receive a tax bill demanding the tax credits back since they technically were ineligible.... which I think could be a huge lawsuit against the employer...

Excellent point and the primary reason why I would not offer this arrangement to my clients...

 

[scagnt83]

Excellent point and the primary reason why I would not offer this arrangement to my clients...

Yep. Whenever the EBSA division of the DOL is warning you against something you better listen.

I like DOL notices, they basically put the IRS gibberish into plain english.

 

[hamben]

To clarify, this type of reimbursement plan is an ERISA group health plan, but it is not a group health insurance plan. As such, it is not considered minimum essential coverage and does not disqualify employees and dependents from the premium tax credits. In other words, an employee could purchase individual health insurance from the Marketplace, access subsidies, and be reimbursed for the non-subsidized portion of their premium.

Best regards,
Christina

To clarify, if the employer is offering benefits that are not minimum essential coverage then they will be subject to the $100 day fine. Why would any employer or agent allow there clients to be exposed? I am going to assume you have actual read the ERISA laws. (which is going to take a vivid imagination)

U.S. Department of Labor - Find It By Topic - Health Plans - Health Plans & Benefits


A group health plan is an employee welfare benefit plan established or maintained by an employer or by an employee organization (such as a union), or both, that provides medical care for participants or their dependents directly or through insurance, reimbursement, or otherwise.

Your plan would be considered a group plan by the IRS. Employers would be subject to the $100 day fine for offering a non compliant plan. Employees could qualify for tax credits. But again why would an employer do anything this stupid? Why wouldn't the employer just offer to fund employees health savings account and avoid all the legal problems?