As a small business owner, you want to help employees with healthcare costs but traditional coverage is unattainable. Instead, like so many small businesses around the nation, you help employees by reimbursing their personal health insurance. Only, now there is a problem.
As of July 1, 2015, employers face penalties for offering Employer Payment Plans; in other words for reimbursing employees’ health insurance the wrong way.
Understanding these new health care reforms can be confusing, sometimes even scary. But what you may not know is there is a way to help employees with personal health insurance and avoid the costly penalties.
What is an Employer Payment Plan?
According to the IRS, an Employer Payment Plan is simply an arrangement where an employer:
Directly pays for employees’ premiums (ex: to the insurance company), or
Reimburses employees directly for individual health insurance policies (ex: without using a formal, compliant reimbursement plan).
What if We Offer an Employer Payment Plan?
As of July 1, 2015, if your business offers an Employer Payment Plan, you are subject to penalties of up to $100 per day, per employee (see IRC Section 4980D).
Why? Employer Payment Plans do not meet the new health reform regulations required of group health plans. For example, they do not cover preventive care.
What are Our Options?
If your business has been offering an Employer Payment Plan, there is a compliant way to help employees with their personal health insurance costs: set up a Section 105 Healthcare Reimbursement Plan (HRP), such as ZaneHealth.
A Section 105 HRP is designed to follow the new health reform rules. How? An HRP is structured to only reimburse employees for individual health insurance premiums and basic preventive care.
Using a Section 105 HRP, your business can help employees with personal health insurance costs and avoid the costly fines.
As an alternative to a formal reimbursement plan, your business can offer employees a stipend (bonus or raise) to use on health insurance, but this must be treated as taxable income.
How do we Switch to an HRP?
To switch to a Section 105 HRP, follow these easy steps:
Cancel the Employer Payment Plan (if there is a formal plan in place).
Set up the required Section 105 Plan Documents (see this sample Section 105 Plan).
Confirm the plan complies with the new health reforms, including the annual limit and preventive care rules outlined in IRS Notice 2013-54. Also ensure plan compliance with IRS, HIPAA, and ERISA rules.
Educate and onboard employees.
Tip: Health reform legislation and federal regulations are complex. Many employers prefer to contract with a third party (such as ZaneHealth) to make reimbursements easy and keep up with the ever-changing federal regulations.
If your business offers an Employer Payment Plan, don’t worry. You have two options to help employees with their personal health insurance and avoid paying costly penalties. The first option is to adopt a Section 105 Healthcare Reimbursement Plan, such as ZaneHealth. The second option is to provide a taxable stipend.
What questions do you have about Employer Payment Plans or helping employees with their personal insurance costs? Leave a question below. We’ll be happy to answer it.