Reimbursing Individual Health Insurance Premiums

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January 20, 2021

Reimbursing Individual Health Insurance Premiums

There are 2 ways a company can reimburse individual health insurance premiums paid by employees, on a pre-tax basis for both the company and the employee.  The choice between the 2 will come down to employer size and what the goal is.  Think of these as 2 very similar tools… one is a circular saw and one is a Dremel saw. Both can probably get the job done for 90% of cases, but some will be easier with one tool rather than another depending on the circumstances.

ICHRA: Individual Coverage HRA

  • Usually better for large employers (i.e. more than 50 employees)
  • VERY useful for temp staffing agencies, restaurants, seasonal businesses, and many businesses that were “shocked” by the Employer Mandate from the Affordable Care Act.
    • Industries that didn’t usually provide health insurance could not find health insurance because most legitimate / traditional (insert adjective of choice) insurance companies would not insure them.  They were too large, too risky as “virgin” groups. So an underground shady industry of companies you’ve never heard of popped up to provide “Affordable Care Act compliant insurance” to these industries. My choice of words to use “underground” & “shady” is on purpose. While some may have been compliant, it was essentially a shake down racket forcing companies to pay excessive fees and charges.  The ICHRA was passed to relieve this situation.
  • Employers can “segment” their employee populations into “classes”.  Think about a staffing agency or restaurant with standard 9-5 staff that work in the office each day… and then the people who are temporary and maybe work 20-30 hours a week.  The 9-5 staff (i.e. chefs, kitchen staff, “essential workers”) can be classified as “Core staff” and the bartenders, waitresses, and part time staff can be “Flex staff”.  There can’t be any overlap… the Core staff gets the traditional plan, and the Flex staff gets the ICHRA.  No Overlap in eligibility.
    • The Core Staff can receive a traditional SMALL group health plan or some other regular health plan, that a traditional health insurance company will offer.  Then the “Flex staff” can be offered the ICHRA.
  • The ICHRA is primarily for LARGE employers to meet Affordable Care Act mandates without having to access obscure markets with unknown insurance companies that charge very high fees.  It can also be used by ALL employers

QSEHRA: Qualified Small Employer Health Reimbursement Arrangement

  • Better for small employers (i.e. less than 50 employees)
  • Cannot offer a traditional GROUP health insurance plan IF you want to reimburse individual insurance premiums.
  • The QSEHRA is more flexible for small employers… you can reimburse a certain amount for health insurance, THEN add additional features a lot of small employers like. For Example:
    • Company ABC reimburses up to $150 each month to full time employees for health insurance premiums
    • Company ABC also reimburses up to 25% of the deductible, up to a maximum of $500 per year
    • Company ABC reimburses hospitalizations, up to $200 per occurance.

Both have “red tape” that come with scary sounding fines.  Don’t let the charlatans scare you into paying excessive fees!  These are relatively simple arrangements, that if you execute with good faith (not as a mechanism to circumvent the ACA or create additional tax savings), you’ll be fine.  If you need help with any of this, we can provide that to you on a fee for service basis.