Individual
Employer-Funded Individual Health Insurance
Rick Lindquist, President of Zane Benefits
WEBINARS

Zane Benefits offers simple, affordable, and compliant health benefit solutions to small and medium-sized businesses.
The ZaneHealth software helps businesses save 20% to 60% on healthcare costs by reimbursing employees for individual health insurance.
Our online solutions allow businesses to create compliant healthcare reimbursement plans that create happier employees, reduce costs, and save time.
#compliance101
Zane Benefits' Partner Program is an opportunity for insurance professionals to provide clients with custom Zane Benefits solutions. Request a Partner Evaluation.
DISCLAIMER
The information provided herein by Zane Benefits is general in nature and should not be relied on for commercial decisions without conducting independent review and analysis and discussing alternatives with legal, accounting, and insurance advisors. Furthermore, health insurance regulations differ in each state; information provided does not apply to any specific U.S. state except where noted. See a licensed agent for detailed information on your state.

Additional FREE Resources: Small Business Health Insurance &
Premium Reimbursement
#compliance101
View all of our free eBooks, Whitepapers, and On-Demand
Webinars at: ZaneBenefits.com/Resources
Subscribe to our Blog at:
ZaneBenefits.com/Blog

@RickLindquist
Rick Lindquist , President of Zane Benefits
Rick Lindquist is President of Zane Benefits, Inc., the leader in defined contribution employee health benefits. Zane works with brokers, agents and CPAs to transition clients to defined contribution healthcare solutions. Rick joined Zane in 2007 and was appointed President in 2011. He is a regular contributor to many health benefits publications and co-author of The End of
Employer-Provided Health Insurance . Rick received his B.S. in
Economics and B.A. in Computer Science from Duke
University.
Wiley, November 2014
#compliance101

1.
The Undebatable Debate
2.
3 Ways to Fund Individual Health Insurance
3.
Is Tax-Free Possible?
4.
Key Compliance Considerations
5.
Summary / Q&A
#compliance101

zanebenefits.com | 1-800-391-9209

“The Individual Market is expected to expand to more than 150 million insureds by 2025.”
#compliance101

“60% of Small Businesses Will Transition to
Individual Health Insurance by 2017”
- The Inevitable End of Small Business Health Insurance
● Group health insurance costs are unsustainable
● Individual health insurance is better value
● Individual health insurance costs less
● Individual health insurance is eligible for new premium tax credits
#compliance101

Cost of Individual Plan
Cost of Employer Plan
Savings Per Employee
Percentage Savings
Single
$2,424 / year
$6,492 / year
$4,068 / year
63%
Based on 2014 health insurance costs for the state of Illinois.
Source: U.S. Health and Human Services, QHP Landscape Market Medical 2014
( See data.healthcare.gov).
#compliance101
Family
$7,248 / year
$18,312 / year
$11,064 / year
60%

The question is: “How do employers continue to offer health benefits for recruiting and retention?”
#compliance101

zanebenefits.com | 1-800-391-9209

Option 1 - Taxable Stipend
Option 2 - Taxable Reimbursement
Option 3 - Tax-free Reimbursement
Did you know?
Today, fewer than 50% of small businesses offer employees health insurance, largely because of the cost. That’s over 2.3 million small businesses that don’t offer health insurance.
#compliance101

Taxable stipend — All similarly situated employees receive a fixed, taxable stipend to purchase individual health insurance, whether or not they actually purchase health insurance. The employee's monthly contributions are typically added to his or her paycheck. At the end of the year, employees receive a form showing the amount of their stipend that they should report as income on their personal income tax return.
Pros:
● Not a group health plan
● No compliance issues
● Very simple and easy administration (automatic payroll additions)
Cons:
● Company is required to pay payroll tax on reimbursements (7.65%)
● Employees must claim reimbursements as income (20-40%)
● Employees receive money regardless if put towards health insurance premium
#compliance101

Taxable reimbursement — All similarly situated employees are granted a fixed, defined contribution amount to purchase individual health insurance, but only receive the money if they actually purchase health insurance. Employees purchase their own individual health insurance policy and submit proof to their employer (or the employer's third-party provider). The employee receives monthly reimbursements up to the employer’s defined contribution amount that are typically added to their paycheck. At the end of the year each employee receives a form showing the amount of his or her reimbursements which should be reported as taxable income on personal income tax forms.
Pros:
● Employees must show expense before reimbursement
● Feels like a real, structured Health Benefits program
Cons:
● Company is required to pay payroll tax on reimbursements (7.65%)
● Employees must claim reimbursements as income (20-40%)
● Must take extra administration steps to ensure compliance
#compliance101

Tax-free reimbursement — All similarly situated employees are granted a fixed, defined contribution amount to purchase individual health insurance, but only receive money if they actually purchase health insurance. Employees purchase their own individual health insurance policy and submit proof to their employer (or the employer's third-party provider). Employees receive monthly reimbursements up to their defined contribution amount that are typically added to their paycheck tax-free.
Pros:
● Employees must show expense before reimbursement
● Feels like a real, structured Health Benefits program
● Tax-free to employees (20-40%)
● No payroll taxes for employers (7.65%)
Cons:
● Must take extra administration steps to ensure compliance
#compliance101

zanebenefits.com | 1-800-391-9209

Yes.
The tax code has not changed.
Tax-free reimbursement of individual health insurance is 100% allowed under Internal Revenue Code (IRC Section 105).
“Health insurance premiums are medical care expenses under Code Section 213(d)(1), and amounts received as reimbursement for these expenses through the HRP are excludable from the gross income of the employee under Code Section 105.”
#compliance101

Self-insured medical reimbursement plans are a tax-free employee benefit as outlined in IRC Section 105.
#compliance101

All group health plans, including self-insured medical reimbursement plans, must comply with applicable federal rules including IRS, HIPAA, ERISA, and the ACA.
● Basic Considerations
● Key Plan Design Considerations
● Key Administration Considerations
#compliance101

1.
Plan Documents and SPDs
Plan Documents define what expenses are eligible for reimbursement, the amount of employer contribution, and other required details about the reimbursement plan.
The SPD is the primary vehicle for informing participants and beneficiaries about their rights and benefits under their employee benefit plans.
2.
Uniform Explanation of Coverage and Definitions
The ACA requires that group health plans, participants, and beneficiaries receive a standardized summary of benefits and coverage (“SBC”) and a set of uniform definitions (“Uniform Glossary”).
3.
Documentation History
The IRS requires that employees submit proper documentation verifying their claim for reimbursement, and that supporting documentation is saved on file for ten years.
**Reimbursement Plan != Minimum Essential Coverage (will not satisfy Employer Mandate)
#compliance101

1.
Annual Limit Compliance (Notice 2013-54)
Section 2711 of the Public Health Services (“PHS”) Act, as added by the ACA, provides that no annual or lifetime limits may be placed on essential health benefits (“EHB”). PHS Act 2711 provides that annual limits and lifetime limits may be placed on benefits that are not
EHB, such as health insurance premiums.
2.
Preventive Care Compliance
Section 2713 of the PHS Act, as added by the ACA, requires group health plans
(including self-insured medical reimbursement plans) to cover basic preventive health services without cost-sharing.
3.
Non-Discrimination
Must treat similarly situated individuals the same.
#compliance101

On September 13, 2013, the Internal Revenue Service and the U.S. Department of Labor released guidance addressing the issue of tax-free employer contributions towards individual health insurance policies (U.S. Department of Labor, 2013). The effect of this guidance was to make it more cumbersome, but not impossible, for employers to give employees tax-free reimbursement of premiums paid for individual health insurance.
1.
Set up a Section 105 Health Reimbursement Plan (HRP) to give their employees a monthly allowance to purchase (only) individual health insurance and nothing else.
Health insurance premiums are not an essential health benefit under ACA and thus an employer is not required to offer unlimited annual and lifetime amounts for employees to purchase health insurance.
2.
Specify in the HRP plan documents the coverage of unlimited basic preventive care services required by the ACA.
Basic preventive care is an essential health benefit under ACA.
3.
Require in the HRP plan documents that employees seeking preven
4.
tive care must first look to their health insurance policy.
All health insurance plans starting after 2014 must cover preventive care 100%.
#compliance101

The IRS may assess an excise tax on a noncompliant group health plan of $100 per day per affected individual under Code Section 4980D.
“The excise tax will not apply if the employer can show that it did not know that the violation existed (after exercising due diligence), or that the violation was corrected within 30 days of discovery of the failure.
”
“If the violation is due to reasonable cause and not willful neglect, the amount of the excise tax will be limited to the lesser of (i) 10% of the amount paid by the plan for the preceding year, or (ii) $500,000. The IRS could also waive all or part of the penalty if the failure is due to reasonable cause and not willful neglect to the extent that the payment of the tax is excessive relative to the failure involved. See Code Section 4980D(c).”
#compliance101

1.
90-Day Waiting Period Compliance
The ACA prohibits waiting periods over 90 days for eligible employees.
2.
Internal and External Claims Appeal Process
The ACA added new requirements to the internal and external appeal process including how and when procedures are communicated to plan participants.
3.
60-Day Notice of Material Modification
The ACA requires employers to provide 60 days advanced notice to participants when making material modifications to their group health plan (including self-insured medical reimbursement plans).
4.
ERISA Compliance
The employer must not endorse specific individual health insurance policies or pay directly for them.
5.
HIPAA Privacy
The entity processing employee reimbursement claims receives Protected Health Information (PHI) that is required to be held confidentially under HIPAA.
#compliance101

zanebenefits.com | 1-800-391-9209

1.
A major shift from group to individual is occurring. This is largely due to rising premium costs for group health insurance.
2.
There are 3 ways to fund individual health insurance a.
Taxable Stipend b.
Taxable Reimbursement c.
Tax-free Reimbursement
3.
Tax-free reimbursement is permitted under tax code -- it is plan design and administration that determines whether or not an employer is in compliance.
4.
When setting up a reimbursement plan make sure you comply the key plan design and administration requirements to avoid penalty.
#compliance101

Zane Benefits
1-800-391-9209 | zanebenefits.com
info@zanebenefits.com
Rick Lindquist
President
Zane Benefits zanebenefits.com | 1-800-391-9209