Note: None of this should be taken as tax or legal advice.
In 45 states, insurance carriers are allowed to reject applications for
individual health insurance if the applicant has a
preexisting medical condition. If a child of the applicant has a preexisting condition, the child cannot be denied individual health insurance if they are under the age of 19.
Luckily, the federal and state governments have put special mechanisms in place to ensure that these individuals can purchase an individual health insurance plan.
If an employee (or a member of an employee's family that is 19 or older) is unable to obtain individual health insurance due to a preexisting medical condition, they will become eligible for individual health insurance in one of the following ways:
- If an employee (or a member of an employee's family that is 19 or older) is federally HIPAA-eligible, they can purchase an individual health insurance plan through a mechanism provided by the State.
- If the employee (or a member of an employee's family that is 19 or older) is eligible for a state's risk pool, they can purchase individual health insurance through the State risk pool.
- If an employee (or a member of an employee's family that is 19 or older) cannot get health insurance for 6 months, they can purchase an individual health insurance plan through the federal risk pool (PCIP).
When a company
cancels their group health insurance plan, employees with pre-existing medical conditions often become federally HIPAA-eligible.
Note: None of this should be taken as tax or legal advice. The following states offer their citizens with
pre-existing medical conditions the ability to purchase
individual health insurance through a state insurance risk pool.
Note: This should not be taken as tax or legal advice
HRAs, POPs and Tax-free Individual Health Insurance are 100% allowed in Texas if administered the correct way.
The person (Bill Bingham) responsible for this bulletin has since retired. In 2006 (when this bulletin was written), Mr. Bingham strongly believed, that:
“If an employer reimburses insurance premiums through an HRA or allows pre-tax deductions from employer paid salaries through a cafeteria plan, the arrangement is an employee welfare benefit plan providing medical care to employees through the reimbursement of premiums or otherwise."
However, ERISA has a safe harbor regulation that declares that ERISA does not apply to arrangements where employers make no contributions to the purchase of group or group-type insurance but merely make such insurance available to employees should they voluntarily choose to enroll in such coverage (see
29 C.F.R. § 2510-3-1(j)).
According to the 2006 Bulletin B-0028-06:
"TIC §1501.003 states that an individual or group health benefit plan[1] is a small employer health benefit plan subject to Insurance Code Chapter 1501 if it provides health care benefits covering two or more eligible employees of a small employer and
(1) The employer pays a portion of the premium or benefits;
(2) The employer or a covered individual treats the health benefit plan as part of a plan or program for purposes of Section 106 or 162 of the Internal Revenue Code; or
(3) The health benefit plan is an employee welfare benefit plan under 29 C.F.R. Section 2510.3-1(j).
Texas Insurance Code §1501.004 contains similar provisions for a large employer.
...
Under TIC §§1501.003(3) and 1501.004(3), if a health benefit plan is an employee welfare benefit plan under 29 C.F.R. Section 2510.3-1(j), the plan is subject to the group health provisions of TIC Chapter 1501.”
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Individual policies reimbursed by
ZanePOP can
not be made subject to this regulation because, with ZanePOP:
- The employer does not pay a portion of the premium or benefits for the individual health insurance policy;
- The employer/employees do not treat the individual health insurance plan as a part of a plan or program for purposes of Section 106 or 162; and
- The individual plan is not an employee welfare benefit plan under 29 C.F.R. Section 2510.31-1(j).
The non-applicability of TIC Section 1501.003 to individual policies reimbursed by ZanePOP should be straightforward. Please post questions in the comment section.
Similarly, individual policies reimbursed by
ZaneHRA can
not be made subject to this regulation because, with ZaneHRA:
- The employer does not pay a portion of the premium or benefits for the individual health insurance policy;
- The employer/employees do not treat the individual health insurance plan as a part of a plan or program for purposes of Section 106 or 162; and
- The individual plan is not an employee welfare benefit plan under 29 C.F.R. Section 2510.31-1(j).
The non-applicability of TIC Section 1501.003 to individual policies reimbursed by ZaneHRA should be straightforward, but I will go into more detail here because this is where most of the confusion exists.
The ZaneHRA itself is the "Plan", not the health care items reimbursed by the "Plan". In other words, ZaneHRAs are qualified ERISA- and HIPAA-compliant employee welfare benefit plans. However the medical items (e.g. pharmacy, insurance policy costs, doctor visits, etc.) for which each employee chooses to seek reimbursement from their ZaneHRA, are not part of an employee welfare benefit plan.
The federal government has guidelines for employers who want to allow insurers or their representatives access to their employees without triggering ERISA plan status and the associated liabilities. ZaneHRA is designed to comply with these guidelines.
Compliance includes the following restrictions on the actions of employers:
- Employers must not be involved in employees' decision to purchase individual health insurance, or their decision on which insurer or plan to use. They must not get involved in any negotiations with an insurance carrier over price or benefits of individual health insurance plans, and must not provide employees with claim forms or other materials related to their individual health insurance policies.
- Employers may not directly pay premiums on individual health insurance policies. They must not receive any compensation from an insurance carrier in connection with an employee's individual health insurance policy. Employers must not become involved in any claim dispute between an employee and an insurance carrier; all inquiries must be directed to the insurer.
To comply with point (1) above, while still making contributions to an HRA that can reimburse for individual health insurance premiums, employers must follow these additional guidelines:
- Employers must not pressure employees to use the money in their HRA to pay for individual insurance coverage. Employers may require HRA participants to have health insurance coverage to participate in their HRA provided this requirement is waived for participants medically unqualified to obtain health insurance (e.g. rejected, uprated, excluded).
- In addition to reimbursing for health insurance premiums, employers should also allow the use of HRA funds for qualified medical expenses.
- Employers must limit their role to simply reimbursing qualified medical expenses as directed by the ZaneHRA plan.
Last month,
Kaiser Family Foundation released a survey of people who purchase their own insurance.
Of those surveyed...
- 45% said the primary reason they purchase coverage in the individual market is due to being self-employed or a small business owner.
- 16% said their employer doesn’t offer insurance.
- 6% said the employer offers insurance but it would still cost them too much to be covered.
- 3% said they they don’t work enough hours to qualify for their employer's health insurance.
The below chart summarizes the findings.
Note: None of this should be taken as legal or tax advice.
Employers are allowed to use
Health Reimbursement Arrangements (HRAs) to reimburse employees tax free for individual health insurance premiums, similar to the way employers contribute on a tax free basis to group premiums. This has been clarified with the release of numerous U.S. Treasury and State publications spelling out how employers can use HRAs for tax-free reimbursement of the premiums paid for personal health insurance policies. See "Insurance Premiums" in
IRS Publication 502. Also see
IRS Publication 969.
There are specific HIPAA and ERISA regulations governing the distribution of individual health insurance policies at the workplace--basically restricting employer involvement with the sale or administration of employee Individual health insurance policies. The HRA administration platform utilized should ensure employer compliance with these regulations.
Today, less than 50% of small employers offer any employee health benefits, and every year 2 million fewer employees receive group coverage due to rising cost.
Confusing, Outdated and Unenforced State Insurance Regulations
HRA tax-free reimbursement by employers to employees for the cost of individual health insurance premiums is absolutely allowed in all U.S. States. Period.
In some states, there are confusing, outdated and unenforced insurance regulations stating or implying that the payment by an employer with less 50 employees of an individual policy premium could result in the insurance company having created a "group plan"-- thus, requiring the insurance company to offer the same individual policy to all employees of the "small employer" regardless of health status.
While such specious regulations have never been tried in the courts, if they were tried and proven valid, such validity could only benefit both employers and employees. Most insurance carriers ignore these regulations entirely when a proper HRA administration system is utilized or take a "don't ask don't tell" policy with respect to their policyholders.
Note that these regulations do not apply to employers, since state insurance departments regulate insurance carriers (NOT employers).
These insurance department regulations are practically unenforceable since:
- When reimbursing an employee’s HRA claim through a HIPAA- and ERISA-compliant platform, employers are unaware whether the HRA reimbursement is for a doctor visit or a health insurance premium; and
- Insurance carriers are unaware if, after a policyholder pays a monthly premium, the policyholder later receives reimbursement from their employer for the premium.
As a further complication, several states such as
many states recently began requiring small employers to offer either Section 125 (Cafeteria Plan) or Section 105 (HRA) tax-free reimbursement of employees' individual health policy premiums.
