Businesses Should Never Pay Individual Health Insurance

(PRWEB) May 22, 2012

Federal regulations prohibit businesses from paying directly for employee's individual health insurance premiums, outside of an HRA (Health Reimbursement Arrangement), or other IRS/HIPAA/ERISA-qualified tax-free vehicle (e.g. Section 125).

Some businesses might want to pay directly for an employee's individual health insurance plans without utilizing an ERISA and HIPAA-compliant HRA, but doing so may put the business out of compliance with federal regulations and increase the business's (and employee's) tax liability.

There are two major reasons an employer should never pay for its employees' individual health insurance plans directly:

Paying for Individual Health Insurance without an qualified HRA causes the employer to "endorse" the individual health insurance plans
Paying for individual health insurance without an HRA 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 will ensure compliance with federal law.

Furthermore, if an employer were able to technically comply with HIPAA and ERISA in paying for individual health insurance premiums, such payments would be taxable income to employees unless they were reimbursed through an HRA or other IRS-qualified tax-free vehicle. Using an HRA an employer can give employees effectively up to twice as much in health benefits through tax savings than if the employee were to pay for such expenses themselves.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 will ensure the tax deductibility of employee's individual health insurance premiums.

   •  - - About Zane Benefits, Inc.
Zane Benefits, Inc, a software company, helps insurance brokers, accountants, and employers take advantage of new defined contribution health benefits and private exchanges via its proprietary SaaS online health benefits software. Zane Benefits does not sell insurance. Using Zane’s platform, insurance professionals and accountants offer their clients a defined contribution plan with multiple individual health insurance options via a private health exchange of their choice. Learn more at http://www.zanebenefits.com.

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