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Small Business Employee Benefits and HR Blog

Tax Free Individual Health Insurance in Texas Using HRAs, POPs and Payroll Reimbursement Arrangements

individual health tax free texasHRAs, POPs and Tax-free Individual Health Insurance are 100% allowed in Texas if administered the correct way.

This blog post will address the concerns raised by the infamous 2006 Texas Department of Insurance (DOI) Bulletin B-0028-06

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.”

Individual policies reimbursed by ZanePOP cannot be made subject to this regulation because, with ZanePOP:

  1. The employer does not pay a portion of the premium or benefits for the individual health insurance policy;

  2. The employer/employees do not treat a specific individual health insurance plan as a part of a plan or program for purposes of Section 106 or 162; and

  3. 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 cannot be made subject to this regulation because, with ZaneHRA:

  1. The employer does not pay a portion of the premium or benefits for the individual health insurance policy;

  2. 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

  3. 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:

  1. 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.

  2. 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:

  1. 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).

  2. In addition to reimbursing for health insurance premiums, employers should also allow the use of HRA funds for qualified medical expenses.

  3. Employers must limit their role to simply reimbursing qualified medical expenses as directed by the ZaneHRA plan.

Click here to read more about tax free health insurance.

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