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Reimbursing Health Insurance

It has just come to my attention that reimbursing employees for their health insurance may not be allowed as of Jan 2014, can anyone confirm this for me? We have a few employees who chose to get their own health insurance rather than join the plan we offer, and we reimburse them for the cost of their plan. Thank-you

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

What is the rationale given?

Here are two sceanio's,

An employee decides they want a cadillac plan that the company is not willing to pay for, then if we pay exactly what we pay for other company employees.

You hire a new employee. Your plan has a 90 day waiting period. They are currently on a COBRA or personal plan. You agree to pay their plan for 90 days until they go on to your plan.

Why would either of these examples be taxable?

Should you pay the full amount in the first example, the cadillac rate, far above other similar employees; then there can be an argument that the difference between the premiums could be taxable.

The latter example, regardless of plan, I don't believe is taxable.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I would recommend checking with your agent if you have one. I tried to keep up with the ACA compliance when it started and it changes so often that it's tough. I ask my agent questions all the time about what we can and can't do and have my HR Director confirm it.

Anonymous
(Tax/Business Consultant) |

There's nothing "wrong" per se to reimbursing them.
How many employees does the company employ?
Why is the employee "allowed" a reimbursement for their own health insurance instead of choosing the company's health insurance (unless your company's health insurance policy costs are high and/or the benefits provided aren't so good hence the need for employees to get their own coverage)?

Does the company have a(n accountable) reimbursement plan as part of the company policy? If not, the amounts may be taxable.

The employees aren't really getting a tax break since your company is reimbursing them for amounts they paid with after-tax dollars but at least their health insurance premiums are paid.

It depends on your situation which isn't really provided.

http://blog.adp.com/2014/01/09/health-care-reform-planning-for-compliance

Talk to your HR dept. or PR provider unless... you're the one in charge of benefits?
Talk to your tax accountant!

Anonymous
(Finance Manager) |

Hi Wayne, neither of these scenarios are exactly applicable. We have employees that like the benefits of their individual plan better than the plan we offer. The cost isn't more, usually less, but our agreement is to reimburse them for their monthly expense. The plan we offer does not have a waiting period. My question is in regards to the info found on these sites:
http://www.irs.gov/pub/irs-drop/n-13-54.pdf
http://www.dol.gov/ebsa/faqs/faq-aca22.html
To me it reads that the IRS has rules for the taxable treatment of reimbursements for health insurance, but there are market reform provisions in the ACA that apply and make reimbursing non compliant.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Hi,

I don't find specific guidance in either rule sets to answer your question. The closest (but not correct) is in the DOL FAQ.

Assuming a) checks are going directly to the insurance company and not given as "cash" to the employee and b) they aren't claiming premium tax credits, then the "No" (not permissible under the new regs) don't apply.

If the "No" doesn't apply, then there is other regulation stating that it is a "No" otherwise the law is moot, and then it is a "Yes".

I agree with the others, talk to your Agent, but given the ever changing landscape, they may be wrong as well.

Eileen Hamrick
Title: Senior Financial Reporting Analyst
Company: INC Research
(Senior Financial Reporting Analyst, INC Research) |

You are reading the rules correctly. Not only is it taxable to the employee, your company could be fined $100 per day per employee. I am not a tax expert or even close. However, I serve on the Finance Committee of a church. This is a huge issue because many churches reimburse staff for premiums (don't have enough staff to get a group plan). From the publications I have seen, unless you are in a very specific circumstance with an S-corp and only one person participating, you cannot reimburse employees for purchasing their own health care. (Please note that I am not speaking on behalf of my employer.)

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Please provide specific guidance to this opinion.

Thank you.

Eileen Hamrick
Title: Senior Financial Reporting Analyst
Company: INC Research
(Senior Financial Reporting Analyst, INC Research) |

The guidance is found in the FAQs about Affordabel Care Act Implementation (Part XXII) dated November 6, 2014. The introduction to the FAQs and the Q1 speak directly to the question. The Q1 is "My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the market reforms?" The answer is "no." The guidance that is cited in the reply includes IRC sections 9832(a) and 4980D, as well as ERISA section 733(a) and PHS Act sections 2791(a), 2711, and 2713.

Mark Emerson
Title: General Manager
Company: gothamCulture
(General Manager, gothamCulture) |

Our company uses a third party called TASC out of Wisconsin to handle both our FSA plan and medical premium reimbursement plan. We have employees all over the US and it is next to impossible to craft a plan that suits all. Our employees secure their own insurance (caveat: they cannot go through the state or federal exchange for their insurance and must get it directly from one of the insurance carriers in their state. Luckily, with the ACA, rates are the same in and out of the exchanges. Our employees don't qualify for any credits so it doesn't benefit them to go through the exchanges anyhow). Our company contributes towards their premiums on a monthly basis, so the overage is taken out of their paycheck pre-tax and TASC pulls the employee and employer contributions from our company account after every payroll and deposits it into the employee's TASC account. The employee will have linked their bank account and can then request a transfer so they have the funds to directly pay their carrier their monthly premium. This is in addition to the medical out of pocket, daycare, transit and parking FSA that TASC manages for us. It is not as simple from the employee viewpoint that most are used to, but once they learn the process they are good to go. With everything up in the air due to the ACA, we decided to go with TASC as they have an insurance policy that will pay our costs to defend our plan and/or pay any fees/fines should our plan be found non-compliant.

Anonymous
(CFO) |

Can you explain why the "caveat"? I don't get the rationale for it. Going through the exchanges answers (or guarantees) 3 of your concerns (1) price (2) plan compliance and (3) they are getting it from insurance companies that operates in their state. Also, I do not think the Federal credits are going to be a relevant factor.

Rich Robins
Title: Accountant
Company: Tec
(Accountant, Tec) |

ACA made reimbursement of health care costs illegal. There are prob a few very specific exceptions, but we stopped reimbursements spring of 14'. Far less work now having done so! If EEs wanna top up, upgrade, etc health plans they should come out of their own pockets to prevent impropriety, ethically speaking.

Anonymous
(CPA, MBA) |

I believe you can find some of your answers at
http://www.irs.gov/Affordable-Care-Act/Employer-Health-Care-Arrangements

Mark Emerson
Title: General Manager
Company: gothamCulture
(General Manager, gothamCulture) |

Anonymous,

Those are the rules per the ACA/IRS - no employer reimbursement of premiums for plans gotten through an exchange.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I just read that they are trying to change those rules.

Another rule without thinking all the probable variables through.

Anonymous
(Chief Administrative Officer) |

This article describes the Small Business Health Care Relief Act, which may relate to the potential changes to the rule mentioned just above.
http://www.zanebenefits.com/education/sbhra-summary-of-legislation

Anonymous
(Finance Manager) |

Thank-you so much for all the answers, but I am thinking I would be smart to get some advice from a lawyer. Now, can anyone recommend a good tax lawyer who specializes in the ACA, will answer questions promptly and not be too expensive (tall order, I know!).

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