Employee reimburses Employer for health insurance

[WhiteOleander]

I can't find any info about this. IF the employee reimburses the employer the premium for health ins., is there a problem as far as the ACA goes? I have found info about the employer reimbursing the employee but not the other way around.

[ATSMAN]

Is this a hypothetical question or do you have a real life situation.

[WhiteOleander]

This is a real life situation. When we talked with them last year they said they were not offering health ins. (very small comp.) Then, we get info to prepare W-2s and they tell us the employees are paying back the employer for the ins. What? Why? It makes no sense to us. But, does anyone see an issue with ACA. The owners said the Ins comp told them they cannot do this in 2015.

Thanks.
P.S. As busy as this time of year is, I promise I would not post a hypothetical situation. LOL

[TaxGuyBill]

Can you clarify what is going on?

Did the employer pay for a 'group plan', such as through SHOP, and the employer originally paid for part of it, but now the employees are paying it back (basically paying the full premium)?

Or did the employer reimburse the employees for their individual health plans through an HRA, and now they realized that was bad and the employees are paying it back (undoing the HRA reimbursement)?

[ATSMAN]

Yes we need more details. Both of those situations cause other complications.

Are any of those reimbursements taken out of payroll deduction and reducing gross/taxable income?

Did the employer take a full deduction for the health insurance premiums, including any credits? How will they book the reimbursement.

This could be a mess!

[WhiteOleander]

There is no HRA at all. The way they have done it is:

Gross pay 100.00
Soc Sec (6.20)
Medicare (1.45)
Fed W/H (1.00)
Health Ins. (1.00)
Net CK 90.35

So, it basically looks like the employer purchased the ins through a group policy. Maybe they got a good rate.??? Then they told the employees they wouldn't pay the premiums for it but if the employees wanted it, they would take the premiums out of their pay, So, they could get lower cost ins. Also, not all employees chose to do this. There are less than 10 employees.

Thanks for trying to help us sort this out.

[ATSMAN]

There is no HRA at all. The way they have done it is:

Gross pay 100.00
Soc Sec (6.20)
Medicare (1.45)
Fed W/H (1.00)
Health Ins. (1.00)
Net CK 90.35

So, it basically looks like the employer purchased the ins through a group policy. Maybe they got a good rate.??? Then they told the employees they wouldn't pay the premiums for it but if the employees wanted it, they would take the premiums out of their pay, So, they could get lower cost ins. Also, not all employees chose to do this. There are less than 10 employees.

Thanks for trying to help us sort this out.

Assuming there is no S.125, HRA etc and 100% of the premiums are being paid by the employees with after tax money via payroll deduction and employees can choose if they want this coverage then this in my opinion is not a true group insurance policy. It looks like a membership or association plan. All employer sponsored plans have to meet some non discrimination tests.

Does the insurance carrier know that 100% of the premiums are paid by the employees and there is absolutely no employer contribution? Would they have underwritten that policy that way and call it a group insurance in he traditional sense?

[TaxGuyBill]

It just sounds like the employees are paying for 'group insurance' through their employer, like any other business. They aren't really 'paying back' the employer, they are just paying for employer insurance, but perhaps on an after tax basis.

There is no requirement that the employer pays for employee's insurance. The employees can pay for 100% of it.


However, it just seems odd. Usually the 'group' employer plans cost MORE than individual policies. If the employees are paying on an after-tax basis, there wouldn't be any benefit there. Also, having access to employer insurance significantly limits the employees ability to claim the Premium Tax Credit if they buy insurance through the Healthcare Marketplace.

[ATSMAN]

It just sounds like the employees are paying for 'group insurance' through their employer, like any other business. They aren't really 'paying back' the employer, they are just paying for employer insurance, but perhaps on an after tax basis.

There is no requirement that the employer pays for employee's insurance. The employees can pay for 100% of it.


However, it just seems odd. Usually the 'group' employer plans cost MORE than individual policies. If the employees are paying on an after-tax basis, there wouldn't be any benefit there. Also, having access to employer insurance significantly limits the employees ability to claim the Premium Tax Credit if they buy insurance through the Healthcare Marketplace.

If this is employer sponsored group insurance plan and the employee did not pick it, they can not get PTC even if they qualified based on income alone. If they could get PTC their net premium may be lower than what they are reimbursing the employer!

[TaxGuyBill]

If this is employer sponsored group insurance plan and the employee did not pick it, they can not get PTC even if they qualified based on income alone. If they could get PTC their net premium may be lower than what they are reimbursing the employer!

If the self-only employer insurance is greater than 9.5% of their household income, they can still qualify for the Premium Tax Credit.

[TXEA]

In most states, the employer is required to pay at least 50% of the premium for a group policy to be issued. The health insurance companies require this to avoid adverse selection (they want the young and healthy employees to sign on). As for the reimbursement to the employer, I really can't find a problem for tax purposes (although there seems to be one). They have less than 100 employees (50 for 2015) so they are not required to offer coverage. As for discrimination, assuming all employees are paying 100% of the premium, then that is not discrimination.

Now, if the employer pays for 100% of his/her premiums using company funds, then we will have some discrimination.

I do think the insurance company would have something to say about this, and I know they would if your client is in Texas.

The employees on the other hand may be giving up their opportunity to obtain a PATC from the exchange by electing to reimburse their employer for coverage.

There is something about this that seems wrong for tax purposes, but I can't think of it now. Check and see if the employer is paying his/her own premium with company funds. That will be a problem (100/day x #employees).

Sorry for the jumbled mess of thoughts....trying to wrap my head around this. I will think on this some more.

[Bees Knees]

In most states, the employer is required to pay at least 50% of the premium for a group policy to be issued.

That may have been true in the past for purchasing lower cost group health plans from an insurance company, but there is absolutely no law preventing an employer from purchasing health insurance for employees that requires the employee to pay 100% of the cost with after tax dollars. Employers have always been able to do this, and ACA does not prevent this practice, unless the employer has 50 or more full time equivalent employees (starting in 2016).

My suggestion would be for small employers that want to pay some but not all of the cost, go to the SHOP through the Marketplace. The SHOP basically allows the employer to choose how much, if any, the employer will pay for each employee. Lets say the employer only wants to kick in $500 per employee per year, and the employee has to pay the rest. The SHOP allows for this, and provides each employee the option to choose which health insurance company and which health insurance plan they want. If the employee doesn't want to participate, fine. The employer cannot be penalized for discrimination when the employee chooses not to participate.

[TXEA]

Bees - Try to get a group policy in Texas direct to the carrier i.e. not on the SHOP) and tell them the employer is not paying anything. It won't happen. It almost always has to be 50%. You may be thinking of a list bill policy where the insurance company bills one entity for multiple individual policies. I would think many other states have the same requirement; although I have never bothered to look. I just know Texas. Just curious, have you looked at the contract and the law or just looking at what the employer is actually doing.....I don't guess I know how other states have handled this in the past.

Also, the SHOP requires a 50% contribution minimum from the employer to be eligible for the credit, but otherwise does allow for minimum employer contributions without the credit.

"In most states, at least 70% of your full-time employees must enroll in your SHOP plan - Source: HealthCare.gov.

I have seen half dozen large employers offer 50% premium and not find 25% of the workforce willing to sign up. So, the low employer cost sharing probably will result in not meeting the percentage for many businesses.

[ATSMAN]

The reason an employer would want group health insurance is because it is underwritten as a group reducing adverse selection thereby generating a lower premium compared to an individually underwritten health policy with comparable features.

List bill insurance is only a convenience feature for billing purpose.

We need to get clarification from the OP if it was indeed a true group insurance or list bill or some other type of policy.

TXEA you are correct about employer contribution requirement in most states.