Excellent article, Rick. You do a good job of explaining to business owners the precautions they must take when considering individual plans for their employees.  
 
I'm curious to know the potential liability to the employer if he has employees that are unable to (due to medical history) obtain coverage that can compare to standard individual plans. I ask because the plans available in California for uninsurable people are more expensive and less comprehensive than what's available to insurable people. If one employee can't get coverage that's available to other employees, isn't the employer exposing himself to potential discrimination charges?

If the employer is not compliant with HIPAA/ERISA and deemed to have been endorsing individual health plans as a group health plan, the company might be held responsible for the (discriminated) employee's medical expenses required under ERISA (that were not covered by a the endorsed health plan).

"the company MIGHT be held responsible for the (discriminated) employee's medical expenses required under ERISA.... " do you know of any case where this has actually occurred? Is there a legal case to cite? What is the financial impact?

Thanks for pointing that out to me Rick as it's important for the employer to not identify this benefit as a group health plan. If the employer is giving employees money for the purpose of them obtaining their own individual health insurance, what DO you call it?  
 
Additionally, I don't know how an employer can pay for an employee to get a health insurance policy that another employee can't quality for and NOT be accused of giving one employee a benefit that he didn't give to another. Please explain. 
Thanks.

<<"the company MIGHT be held responsible for the (discriminated) employee's medical expenses required under ERISA.... " do you know of any case where this has actually occurred? Is there a legal case to cite? What is the financial impact?>> 
 
The actual law is 29 CFR 2510.3-1(j) (see http://www.law.cornell.edu/cfr/text/29/2510.3-1) 
 
(j) Certain group or group-type insurance programs. For purposes of title I of the Act and this chapter, the terms “employee welfare benefit plan” and “welfare plan” shall not include a group or group-type insurance program offered by an insurer to employees or members of an employee organization, under which 
(1) No contributions are made by an employer or employee organization; 
(2) Participation the program is completely voluntary for employees or members; 
(3) The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs and to remit them to the insurer; and 
(4) The employer or employee organization receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs. 
 
Regarding financial impact, I don't have a case study for you to cite. But, the example most attorneys use is the $2,000,000 premature baby that the employer would have to cover in full... if this law were enforced in the circumstances we discussed. 
 
 
 
 

<<Thanks for pointing that out to me Rick as it's important for the employer to not identify this benefit as a group health plan. If the employer is giving employees money for the purpose of them obtaining their own individual health insurance, what DO you call it?>> 
 
Well, the way you are describing it, it sounds like the employer would be endorsing a specific policy. That's not how it should be done. These are the guidelines we recommend: 
 
Employer Federal Guidelines Regarding Individual/Family Health Insurance Policies 
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. While ZaneHRA is designed to comply with these guidelines, each employer bears ultimate responsibility for complying with these regulations. 
 
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 verifying that a qualified medical expense (such as an individual health insurance premium) was incurred, and then reimbursing such amount from the HRA. 
 
 
 
<<Additionally, I don't know how an employer can pay for an employee to get a health insurance policy that another employee can't quality for and NOT be accused of giving one employee a benefit that he didn't give to another. Please explain. >> That's why they should not pay for it...  
 
Rather, employers instead contribute to an HRA that can reimburse for any medical expense (including insurance premiums) without setting any requirements on how the employees spends the money. That way, the employee decides how to utilize the money and pays for the expenses with their own dollars on a voluntary basis (note: voluntary is a key word to avoid employer endorsement). 
 
In this case, the HRA is "Group Health Plan", not the policies/expenses that the employees' buy with their own dollars.

I assume this also applies to employers who choose to pay individual premiums for employees on Medicare, such as a Medicare Advantage Plans, Medicare Supplements or Medicare Prescription Drug Plans, correct?

What you say is all fine, well, and good for employees under the age of 65. What about a small employer under 20 employees who offers only a CDHP with an HSA? Employees in this situation would loose the ability to add to their HSA beyond 65, making the high deductible health plan unattractive. Medicare A & B combined with a Medicare Supplement Plan F and stand-alone Part D Rx plan would offer them almost 100% coverage for far less premium. In this instance there is no medical underwriting, a fixed monthly premium, guaranteed issue and therefore no apparent HIPAA exposure. Could this small employer consider paying premiums for his over 65 employees, if it is the employee's choice to leave the group plan with no urging from the employer?

<<Could this small employer consider paying premiums for his over 65 employees, if it is the employee's choice to leave the group plan with no urging from the employer?>>  
 
Yes, though, they should do this through an HRA. The best way to do this without discriminating based on age would be to offer a dual option 1) HSA with CDHP or 2) HRA that can reimburse premiums 
 

Would a HRA be an option for a small non-profit without a group policy? If not, what would be the best way to handle a minister's health insurance...just treat it as taxable income and then take a full deduction since he is considered self-employed for income tax purposes?

This article is factually wrong. Employers can provide tax-free payments for individual health insurance in two ways: 
 
1. the employer directly pays the insurer; or 
2. the employer reimburses the employee for the cost of the policy but only after verifying the employee has actually paid the premium (e.g. via a receipt, statement, etc.) 
 
Neither of the above methods requires the use of an HRA.

Hi Bill, 
 
Today, in the majority of states, individual health insurance is medically underwritten. Thus, paying for the premium would cause the employer to endorse the individual plan under ERISA and put the employer of compliance with federal law (since the individual health plans does not meet minimum coverage requirements and discriminates based on health. This issue goes away in 2014.

Hi Jamie, 
 
Yes - an HRA is great option for a small business without health insurance. 
 
I recommend speaking to an HRA specialist at Zane for more case specific information, see http://www.zanebenefits.com/contact-sales

Can a business legally deduct medical insurance premiums from a weekly paycheck and not pay the insurers premium, causing the insured no medical coverage?

Hi Laura, 
 
I'm not sure I fully understand your question. Will you please reword it?

HRA’s not only beneficial to small businesses but also to their employees. This ensures everyone is taking responsibility for their health insurance.

Our W-2 employees are on 100% commission. I'd like to get a company health insurance policy whereby we pay 50% of the cost…however I'm concerned what happens if my commission-only employee doesn't earn any commission in one (or two)months how his/her 50% will be paid. Am I allowed to accept a check from the employee to pay his/her 50% portion of the insurance premium if they have no upcoming commissions?

Hi Robert, 
 
I recommend you talk to one of our HRA specialist. It might be a better option for you to implement an HRA. 
 
That way, you avoid this issue entirely. 
 
See <a href='http://www.zanebenefits.com>www.zanebenefits.com

Hi Rick, 
 
I am employed by a small company and I get reimbursed for my health premiums (like Mark mentions). I currently have an HDHP with an HSA, and have a relatively low premium so that I use up the maximum that my employer will reimburse me for. Is it possible for him to reimburse me for my HSA contributions, or make contributions directly? If so, I would raise my deductible and have him contribute the difference to my HSA. I was researching trying to get a plan with a "premium pass through", but it seems that only federal employee plans have that option. 
 
Thanks

I'd like to see Mark's post addressed. 
 
Pub 15-B seems to confirm what he's saying...

Mark/Jonathan -  
 
When an employer pays for an individual health plan directly to the insurer or reimburses a premium without utilizing an ERISA/HIPAA compliant plan, the employer is deemed (under ERISA/HIPAA) to have "endorsed" the individual policy premium. 
 
As individual policies (in nearly all states), are medically underwritten and do not comply with the minimum requirements under ERISA, the employer falls out of compliance. 
 
Additionally, as individual policy premiums (in nearly all states) are based on health, the employer immediately violates HIPAA privacy rules if they do not follow the correct substantiation procedures for the premium. The employer should never know specifically 1) What carriers/policies the employees choose and 2) what the employees are actually paying. 
 
It's not a "tax issue" - it's an ERISA "discrimination issue" and a HIPAA "privacy issue". 
 
That being said, these non-tax issues are mitigated in 2014 when individual policies in all states become guaranteed issue and additional reforms take place. 
 
Does this make sense?

"Does this make sense?" 
 
Mostly. However, your HIPAA reasoning seems logically contradictory to the practice of "list billing" described in the instructions for form 8941, the Credit for Small Business Health Insurance Premiums. 
 
Not that logical contradictions between HIPAA and the tax code would be all that surprising.... 
 
I am currently inclined for my small business to run any ERISA/HIPAA risk and wait for 2014...

Form 8941 1) assumes you are complying with other applicable (non-tax) laws and 2) you are offering the products being list-billed as an employer-sponsored plan (this is a requirement in order to take the tax credit).

Rick - thanks for the great article. Do these limitations also apply to LLCs and S-Corps where the employee/s are the owners, or can the employer in this case pay for the employee-owner's individual insurance premiums tax-free?

Hi Oleg, 
 
You would open the company up to the same discrimination risks. However, the risk of a "suit" might be minimized because every employee is an owner. 
 
Many owners can already deduct the cost of their health insurance on their personal tax return, or avoid this issue entirely by using proper software. See http://www.zanebenefits.com/blog/bid/97338/FAQ-Can-an-owner-participate-in-an-HRA for more information

You can't take an individual plan and 're-purpose' it as a group plan. Tax laws and benefit laws (ERISA) aren't necessarily written to compliment (or even agree) with each other. Individual plans cost less because of underwriting which is precisely why they cant work as a group program. I'm not an accountant so I cant say if it's somehow deductible or not but you cant present it or imply that it's some sort of employee benefit. -IMHO

My employer pays $300 a month for my health insurance, however they put it on my paycheck and I am taxed on it. I have to pay my bill on my own there is no hra or anything. Now this is putting me in a higher tax bracket. So now I am showing that i have an exta $4,100 in taxable income that I did not earn. This in making me owe money to the IRS. is this leagl? What can I do about it? According to the article above this is out of compliance with the law. How can I get taxed on monies I did not earn?

Also, these are individual plans not a group plan.

Hi Christy, 
 
You might want to have your employer set up an HRA. See How to Get Tax Free Individual Health Insurance

I'd like to steer the conversation towards the unemployed, specifically, those who can't work because they are on disability (SSD). Disability is given to people because of a serious pre-existing condition. These people are largely unable to find private health insurance. When you are added to the list of those receiving SSD, you are without federal health insurance for TWO YEARS until you qualify for Medicare. What is a person with a serious disability (trust me, it isn't easy to qualify for SSD although there are a lot of people who slip by when they know the ins and outs) for health insurance? I am experiencing another dilemma, ie, doctors who will not even talk to a potential patient who has no health insurance. We are deemed seriously ill by the government's mostly stringent standards but unable to get health insurance (now especially with the cap on PCIP which Social Security officially endorsed) but hard pressed to even find doctors or clinics to care for them.

I don't find it unfair that each person pays the same dollars for the same benefit.

Would an employer that is an S-Corp run afoul of the ERISA regs if the company paid for the owner's individual health insurance policy, but not the employee's policy?

Hi Sam,  
An employer can only offer an HRA to the owner/s by setting up an HRA for an "owner class". It meets EIRSA regs as long as this is based on bonafide job descriptions. However, as an S-Corp they may receive a limited tax benefit through the HRA. See: http://www.zanebenefits.com/blog/bid/187178/2-Minute-Guide-to-Small-Business-Owner-Participation-in-HRAs

My husband has worked for a company for 22 years. He has never payed a dime for health insurance premium put if his pocket or his pay check. He Has never seen what the individual policy costs the employer. He has been recently diagnosed with stage 4 kidney failure and feels that his employer has released him for insurance cost reasons but found silly reason to let him go. Is there a case here??? Don't know what to do or if I am even thinking right.