Ask a Broker: Can I Offer Health Insurance Reimbursement to Employees?

Hi Teri,
Can I offer a health insurance stipend to my employees instead of offering health insurance?

Thanks,
Marty
-Business Owner in Santa Rosa

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Hi Marty, 

Thank you for your question. As you know, offering some form of healthcare coverage as part of your employee benefits package has become less of an enticement in recent years and more of an expectation. At the same time, you have to be able to balance your ability to offer benefits with your bottom line. Knowing this, it’s easy to understand your desire to try and avoid being made subject to the costs of a group health insurance plan by offering a healthcare reimbursement arrangement. However, incorporating this option into your employee benefits while still remaining compliant with the standards set by the Affordable Care Act presents quite a challenge. 

Are You Subject to the Employer Mandate? 

The first thing to consider is whether or not your company is subject to the ACA’s employer mandate, which states that all business with more than 50 full-time equivalent employees must offer affordable health insurance coverage options to its workforce. How are FTE’s determined? The details set by the Internal Revenue Service are listed below: 

Full-time employees are those who work at least 30 hours per week.

• Individuals working more than 130 hours in a calendar month are also considered FTE’s. 
• Full-time equivalent employees (part-time employees whose cumulative hours equal that of an FTE) are not considered FTE’s for the purposes of the mandate. 

The question of whether a healthcare reimbursement plan qualifies as “affordable coverage options” if you are subject to the mandate comes down to tax credits. Your employees cannot receive a credit by purchasing insurance through the Marketplace while you also qualify for one for offering healthcare coverage. Thus, if you must comply with the mandate, you need to offer a group health plan. 

Small Business Considerations

If your business has less then 50 full-time equivalent employees and is not subject to the mandate, you can offer a Healthcare Reimbursement Account or HRA as part pf your employee benefits through Section 105 of the IRS regulations. However, that reimbursement cannot be for private health insurance plan premiums. You’d have to instead establish a specialized plan which does not impose a plan-wide maximum annual benefit and offers no roll-over options. 

So, in summary, If federal regulations allow you to set up a reimbursement plan, it must be structured correctly in order to remain ACA compliant. Ultimately, going with group health plan coverage may still end up being your best option simply for the added benefits and of employee satisfaction and retention.

Best of luck, 
     Teri Sackett

For more information on incorporating the right healthcare plan into your employee benefits, contact Sackett Insurance Services at 707-823-3698 and/or subscribe to our online blog.