Note: None of this should be taken as legal or tax advice.
The easiest way to offer health benefits today is via a
health reimbursement arrangement (HRA). With the right HRA Software, employers can now record tax-free health care reimbursements via their existing payroll service (e.g. Paychex, ADP, Quickbooks, etc.). When reimbursing employees tax-free via payroll, it is important to understand the difference between a payroll deduction and a payroll reimbursement.
What is a payroll deduction?
A payroll deduction is the removal of dollars from an employee paycheck.
What is a payroll reimbursement?
A payroll reimbursement is the addition of dollars to an employee paycheck.
How does a payroll reimbursement differ from a payroll deduction?
When an employer reimburses an employee through an HRA, employee gross salaries are not affected. An employer simply adds the dollars that have been approved for employees' qualified medical expenses (e.g. insurance premiums, doctor visits, etc.) to the employee's paycheck using a non-taxable line-item. This concept is often referred to as a "tax-free addition" or "negative deduction" on the paycheck.
What obligations does an employer have to report payroll reimbursements?
IRS Notice 2012-9 clarified that an employer is not required to report payroll reimbursements made through an HRA.
Note: None of this should be taken as legal or tax advice.
Now that 2012 has become reality, figuring out employee health benefits can be a daunting task for both employers and employees.
With looming changes from health care reform and increased cost-shifting to employees,
defined contribution health benefits have emerged as the health benefit program of the future. According to leading experts,
2012 promises to be a huge year for defined contribution health benefits. That means any employer or employee considering health benefits in 2012 needs to consider the following.
In a
recent survey, McKinsey & Company spoke to a number of employers regarding major trends they see for 2012 and beyond. The following is a summary of those trends to help employers plan their health benefits strategy:
1) Cost-shifting brings companies closer to defined contribution health benefits
2) Health care reform encourages defined contribution health benefits
Health care reform, coupled with rising costs, has employers of all sizes concerned. According to McKinsey & Company, up to 60% of educated employers plan to "definitely" or "probably" pursue alternatives to offering health insurance such as:
- Dropping employer-sponsored coverage,
- Offering employee health benefits using a defined contribution model, or
- Offering health benefits only to certain employees.
Many carriers have added defined contribution health benefit programs to their product offerings, confirmation that defined contribution has become an increasingly important component of health benefit programs.
3) Technology and education are a big part of defined contribution health benefits
One of the primary changes to the health benefits landscape is the move toward more electronic communication, which means that employees will be required to educate themselves and enroll in their own health insurance plans.
Private health exchanges and individual health insurance quoting/enrollment technology are expected to be a large component of defined contribution health benefits.
With
less than 25% of small businesses expected to offer group health insurance by 2014, have you explored all possible alternatives?
Extend Health Inc., a health exchange company, hopes to raise around $75 million with an initial public offering (IPO) of stock, according to a registration statement filed with the U.S. Securities and Exchange Commission.
The company runs the ExtendRetiree program, a private health exchange that helps employers switch retirees from traditional group retiree health plans into individual Medicare Advantage, Medicare supplement and Medicare Part D prescription drug plans.
Instead of paying paying the full cost of the new individual Medicare coverage, or a fixed percentage of the cost, the employer pays a set amount for each retiree who switches, the company says. The platform makes use of defined contribution health plans and health reimbursement arrangements. Click here to read the press release.
Note: None of this should be taken as legal or tax advice.
Experts suggest that employers' use of consumer-driven health plans has increased due to rising health insurance costs.
What do you think?
