Under federal regulations, businesses are prohibited from directly paying for employees’ individual health insurance premiums and medical expenses without the use of an HRA (Health Reimbursement Arrangement), or another tax-free arrangement that is IRS/HIPAA/ERISA qualified.
The two main reasons for this are that 1) Such payments make it would look as if the company is endorsing an individual health insurance policy, and 2) These direct payments would be taxable income to employees.
By paying directly for workers’ individual health plans, according to federal law, a company is treating the policy as if it’s part of an employer-sponsored plan that is regulated by ERISA (Employee Retirement Income Security Act). The problem here is that your company can be out of compliance with the act because many policies fail to meet the minimum ERISA requirements for group plans.
Your company can also be in violation of HIPAA-privacy requirements because employers are not permitted access to their staff’s HIPAA-protected medical cost details. That includes the medical expenses covered by health insurance.
The federal government has developed guidance explaining how companies can avoid ERISA and HIPAA regulation violations. And, to ensure your company does, set up an HRA that is HIPAA and ERISA compliant. With an HRA, your company can legitimately reimburse employees for medical costs and for health insurance premiums.
Even though, this is the very last month of the year, businesses still have until December 31 to set up an HRA for 2012. This can allow the business to reimburse for the entire year’s health insurance expenses. Small business owners can see how to establish an HRA, which may help cut health insurance expenses in half, at 105 HRA Plans for Small Business Owners. An HRA is also an option for certain sole proprietors, who can learn more about this at 105 HRA Plans For The Self-employed.
Once established, very minimal administration is required to maintain an HRA. And, employers have a lot of flexibility in how they wish to structure arrangements. Employees can also be easily added or removed from HRAs, and because these are reimbursement plans, little upfront funding is involved.