Less than 50 percent of small businesses offer insurance employee health , primarily because of costs. That's more than 2.3 million small businesses that can not offer insurance. Due to the exponential increase in Group premiums of health insurance, companies are looking alternatives. The prevailing alternative is to reimburse employees for individual health insurance.
In this new Zane Benefits Whiteboard Session, JD Cleary is considered how the employer can reimburse employees tax-free for individual health insurance, while the business and the employees to keep in compliance.
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Video Transcription
Welcome and thank you for whiteboard session today Zane Benefits participating in today's issue of compliance-101 My Name JD Cleary and I'm really happy to present today.
why we Compliance 101 is to discuss the fact that employers have really struggled in this country with the offering group health insurance, or your traditional employer-sponsored group health plan to their employees. And they are looking for alternatives, which include taking advantage of individual health insurance in their state.
offers the three main ways they try to take advantage of individual health insurance for employees through a monthly stipend, in which the employer might great employee benefits, or only employees money on their health insurance.
Two of the employer could provide a taxable premium refund plan choose. Something formal, but if the employee taxes on the money that they received from their employer to pay.
Third, and as you can imagine, which is the most advantageous tax-free premium refund plan. Again a formal plan if the employer has put something in writing to say hey people, here's our plan to reimburse you for your individual health insurance policy, but on a tax-free. So, employees are not taxed on the money that they receive from their employer.
This tax-free premium refund plan as self-insured medical reimbursement plan is known. It's the whole reason why we want to talk about compliance, because if an employer a tax-free premium refund plan will offer - or a self-insured medical reimbursement plan - there are some key components, they must be aware of how it relates to the compliance
the three major compliance considerations are the number one -. these self-insured medical reimbursement plan is a group health plan. Well, it's not a fully insured group health insurance plan, but it is a group health plan under ERISA, and that is important.
There is a tax-free payment. So if employers want tax free to reimburse employees for their individual health insurance, have they be sure that they. Following IRS guidelines in Code And since we here agree that it is a group health plan, the plan shall in addition to the control pieces, which we'll cover in a second follow outlined important guidelines in the Federal Code.
IRS say demands that the plan is to be fair. You can not distinguish very balanced individuals. It must be designed in such discrimination testing to fulfill. And, it has to have legal plan documents attached to it.
HIPAA medical privacy law. As an employee buys individual health insurance, and that proof of insurance payment health through medical privacy law, an employer has received from and sent the proper medical privacy practices in position to be aware, to handle that HIPAA protected information.
COBRA. If you are considering a company, a self-insured medical reimbursement plan, and you have more than 20 employees, when an employee leaves the company, they have certain requirements are reported under COBRA.
we have agreed that it is an ERISA group health plan, so it is an employee welfare benefit plan under ERISA. It must follow certain federal guidelines, so that the employer does not approve individual employee health insurance plans. Simply put, the employer can not pay for the health insurance of employees, they have to pay it on their own.
here Finally, the Affordable Care Act. There are all kinds of new requirements that apply to all group health plans. And there must correspond to all group health plans with the major components of the ACA - namely summary of benefits and coverage, no limits on all significant health benefits, coverage for preventive care services - all these pieces must be written in the plan document compliance.
they let us through the tax code for a second and how these insured to self medical reimbursement plan relate speak.
IRS § 105 is the part of the Tax Act that allows an employee to receive repayments from this plan. And remember the self-insured medical reimbursement plan a formal plan, and the plan is what the employee reimbursed. The employees are able to receive these reimbursements for individual health insurance purchases as excludable from income because of § 105 - it's a beautiful part of the Tax Act
And they are able, those refunds as part of a 105 -Plan to obtain. for everything medical care in IRS 213 IRS 213 is defined, says any of these types of expenses can be reimbursed tax free, or an employee may be able to take a personal tax deduction for them. Well, insurance is specified in IRS section 213 (d) as qualified medical expenses for this purpose
IRS § 106 is an interesting part of the code, which states that the value of this pension plan -. So this employer self-insured medical reimbursement plan offering - that it is bound a specific value for this service. The staff is able to receive these services as non-taxable because of section 106
Finally IRS Section 162 is the part of the code that can the employer deduct the reimbursement as a valid business deductions. Just as an employer would do, with all kinds of contributions they make towards health insurance group or a fully insured group health plan, the same thing here. Employer reimburses employees tax-free for their individual health insurance premium, which is a qualified costs under 213, the employer will deduct it because of 162.
The beauty of all this all come together at one time, the employer may from group get health insurance, can still offer a great advantage that all tax benefits holds that previously connected to group health insurance. And if they do all of this right, they have a compliant plan, passed the test, and they do everything properly and employees love it.
This is our whiteboard session for today. Thanks for your visit. Hope you enjoyed it.
We will be posting periodically updates whiteboard sessions. Which topic you want to see next? Leave a comment or question below.
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