Health Insurance Reimbursements Are Back
Under the Affordable Care Act, employers have generally been prohibited from reimbursing employee health insurance costs. However, beginning in 2017, employers can once again use pre-tax funds to reimburse employee health costs, including insurance. Such Health Reimbursement Arrangements (HRAs) have several conditions. A few of the major ones:
- HRAs are limited to businesses with 50 or fewer full-time equivalent employees.
- Employers must reimburse the same amount to every employee (with some exceptions and variances allowed for family status);
- Annual contributions are capped at $4,950 for single employees and $10,000 for employees with families.
- Employees must maintain minimum essential health insurance coverage for their reimbursements to be tax-free.
- Employers may not provide a group health insurance plan at the same time.
These plans are not easy to self-administer. Most employers will need to use a third party administrator, so there is some cost involved. Still, HRAs may be a good option for many employers looking to provide tax-free employee health benefits without the high cost of a group health plan.