Question: My husband works for a mid sized business. They changed health plans a year ago. The premiums are deducted pre tax from his pay. With co-pays and additional bills from doctors the plan is not affordable. The plan promotes “one bill” where the insurance company pays your provider and then bills you. Currently his employer is trying to force employees to payroll deduct for unpaid medical bills. I think we will be forced out of the plan if we refuse. Is this common practice?

Answer: Yes. Your employer can collect what you owe them through payroll deduction. Here’s why you owe the employer that money. The “one bill” plan to which you refer is actually a health reimbursement arrangement (HRA). The HRA works in conjunction with your health insurance coverage. The employer (not the insurance company) pays the employees’ out-of-pocket costs (copays, coinsurance, and other out-of-pocket medical expenses) directly to the providers - doctors, hospitals pharmacies. It’s like an advanced reimbursement. Your employer paid the bill for you, now you owe your employer that money.

Question: My boss had said that I could pick an individual health insurance plan and he would pay the premium, but his accountant told that there were tax penalties for doing that. Is that true?

Answer: Yes. Paying for your individual health insurance will put your employer out of compliance with federal regulations and increase the company’s tax liability and your’s also. There are two major reasons an employer should never pay for its employee’s individual health insurance plan:

1. Federal Compliance Issues - Paying for Individual Health Insurance without a HRA Plan Causes the Employer to “Endorse” the Individual Health Insurance Plans
2. Increased Tax Liability - Paying for Individual Health Insurance without an HRA Plan Causes the Payments to Become Taxable Income to the Employees.

When an employer pays directly for an individual health insurance plan, they effectively endorse each employee’s individual insurance plan as part of an employer-sponsored group health benefit offering. In other words, according to federal law, the employer is treating the individual plan as part of an employee welfare benefit plan regulated by ERISA. Because most individual health insurance plans, do not meet minimum ERISA group plan requirements, the employer is out of compliance.

Separately, an employer is not allowed to know the details of employees HIPAA-protected medical expenses. Because most individual health insurance costs are based on an employee’s health, the health insurance details must be HIPAA protected. When an employer pays for the individual policy, they can violate HIPAA-privacy requirements because they know the details of a HIPAA-protected employee expense.

The federal government has guidelines for employers who want to contribute to employee’s individual health insurance premiums without violating the HIPAA and ERISA regulations. An ERISA and HIPAA-compliant HRA health plan will ensure compliance with federal law. The IRS requires that legal plan documents be established in order for employees to deduct the individual health insurance premiums from taxable income on the annual W-2. An IRS-compliant HRA plan will ensure the tax deductibility of employee’s individual health insurance premiums as well.

Question: Can an employer set up an hra with no group health insurance?

Answer: Yes. Companies that want to offer health benefits, but cannot offer group health insurance due to high cost or participation requirements can offer a defined contribution health plan in which they make available monthly contributions that employees can choose how to spend. Employees can use their monthly contribution amount to reimburse their individual health insurance costs and eligible medical expenses. This is just one of many HRA design options.

Question: I am the fortunate position that I am covered under my spouse’s insurance at a fantastic rate (group health PPO). I’m about to start a fulltime job which offers an HRA “health plan” as a medical benefit option. If I enroll in that plan, will I receive medical care under the PPO as usual and then use the HRA for copays, etc. like I do for an FSA? Or will the HRA qualify as my “primary insurance”? There are levels which are for myself only, myself + spouse, myself + family. My birthday comes first in the calendar year, and will my children also be treated with my insurance as primary if I include my family members?

Answer: HRA plans are very flexible and I’d have to know more about how your employer’s plan is structured to give you a precise answer. But I’ll step out on a limb here and say that you can continue to use your wife’s health insurance coverage primarily and utilize your employer’s HRA plan to reimburse your (and your dependents’ if you add them) out-of-pocket medical expenses. This would be a win-win for both you and your employer, though not for your spouse’s employer.

Question: Is an employer responsible for a portion of a terminated individual’s deductible in a group HDHP?

Answer: The employer is not responsible for any part of your COBRA premium, but you asked about the deductible which adds an interesting angle. If your employer was reimbursing some portion of your out-of-pocket medical expenses (below the annual deductible) while you were employed, it’s possible that there is a Health Reimbursement Arrangement (HRA) in place which would spell out whether former employees are to be covered by the HRA while on COBRA.

Question: I have a healthcare reinbursement account. Our son is 24 and on our insurance. We pay for his out of pocket medicine expenses($330 a month after insurance) because he does not make enough money to afford these medications. We do not claim him as a dependant on our tax return. Can I use my reinbursement account for his medical expenses if we are paying for them?

*Answer: * Your health reimbursement arrangement should allow the reimbursement of prescription drugs for your son. The fact that he is covered on your health plan is key in determining his eligibility fro reimbursement. The fact that you do not claim him for tax purposes is not a factor. I can’t say for certain because HRAs are very flexible and it is possible (though highly unlikely) that prescription drugs are not included as a reimbursable expense on your specific plan or that dependents are specifically excluded.

Question: Why can’t employer reimburse individual insurance premiums?

Answer: Employers can reimburse individual health insurance premiums, but the reimbursement is not tax deductible for the employer and is taxable as income for the employee. The employer would have to establish a Health Reimbursement Arrangement (HRA) in order to enjoy the same tax advantages of group health insurance - deductible premiums and pre-tax income for the employee.

Question: I own a small business and have a health insurance plan for myself and 6 employees. Most of us have elected high deductible insurance coverage - over $1000 deductible. If I choose to reimburse the employees for their health insurance deductible, what would be the best way to do it?

Answer:To do it right you will want to create a Health Reimbursement Arrangement or HRA. If you reimburse employee out-of-pocket medical expenses without a proper HRA in place, you’ll be reimbursing with after tax-dollars. The HRA makes the reimbursements tax deductible to the business and pre-tax for the employee.

Question: Do you have a list of insurance companies in California that offer HRA plans?

Answer: HRAs are usually offered by third-party administrators like 105 Concepts, TASC Benefits, and Zane Benefits. In the past, some of the major insurance carriers in California have tried offering fully-insured high deductible health insurance plans packaged or "wrapped" with an HRA plan, but they really were not equipped to handle the medical expense reimbursement part of the arrangement. Typically, third-party administrators will charge a set-up fee to create the documentation and a monthly administration fee to handle the employee reimbursement. In addition, year-end tax-reporting documents are prepared as part of the service. Annual costs for a for a fully administered HRA start at about $1,000 for a small business. Self-administered or document-only HRA plans are available starting at $200.

Question: Can an HRA reimburse employees for Medicare premiums?

Answer: Yes. In 2002, the IRS issued Notice 2002-45 and Revenue Ruling 2002-41 that opened the door for employers to legitimately reimburse non-group health insurance premiums to their employees as a tax-free fringe benefit. When an HRA is combined with non-group health insurance, including MediCare, the HRA can reimburse the employees’ premiums. The HRA and high deductible individual health insurance combination is absolutely the cheapest health plan available today.

Question: I have been offered a job that only offers HRA insurance and I don't understand it fully, so I am hesitant to accept the job. What should I do?

Answer:: One of my group clients is in the game business. Most of the employees there are young people - under 30 for the most part. The company was providing a defined contribution per month for each employee to pay for group health insurance coverage but found that many of the employees did not value the benefit. We quickly found that the "young invincibles" were healthy and they felt the insurance was too expensive. They believed that they'd never meet the deductibles required before they could get medical expenses paid for. Moreover it wasn't even medical services that they needed. Rather it was treatment for that nagging toothache that the health plan didn't even cover.

So the employer initiated an HRA plan that reimburses medical, dental and vision expenses as well as health insurance premiums. The employees love it and the employer is actually spending less than before.

Question: How does the health reimbursement account work for the employee?

Answer: A HRA fund or account is money that is set aside by your employer and is used toward medical expenses for some your out-of-pocket medical expenses. For example, if you have an annual deductible of $2,500 and a $1,000 fund, up to $1,000 of your medical expenses is paid out of that account. You are then responsible for your remaining expenses up to $2,500, when the high-deductible health insurance coverage kicks in. Health Reimbursement Arrangements (HRAs) get preferential tax treatment - you are not taxed on the amount reimbursed.