Health Care Reform Changed What's Legal
Some of your staff may get their health insurance from a source other than the congregation – perhaps through a spouse, an individually purchased plan, or Medicare. Sometimes congregations want to help their employees pay for this other coverage.
Prior to the health care reform introduced along with the Affordable Care Act (ACA), it was fairly common for employers to make direct payments or provide reimbursements for other insurance. However, such arrangements, known as “employer payment plans,” are now generally prohibited by the ACA and should be approached with extreme caution due to regulatory penalties.
What's Still Okay?
The easiest and most compliant way for an employer to help pay for an employee’s individually sourced health insurance is simply to increase their taxable compensation. However, to avoid the ACA employer payment plan concerns, the increase must not be conditioned on the employee’s purchase of insurance. In other words, the employer may not require any kind of substantiation of the insurance expense as a condition of reimbursement or payment.
Paying for Other Insurance: Key Points
Congregations must consider matters of both law and equity before paying for an employee’s other health insurance. The UUA has prepared the guidance below for informational purposes only; these points should not be construed as specific legal or tax advice to any entity or individual. Note that congregations are solely responsible for all legal obligations relating to any employee benefit arrangement offered outside of the UUA benefit programs, including any employer payment plan or similar offering. Congregations must consult their own legal and tax advisers for comprehensive guidance specific to their organization.
General Guidance
The UUA does not have a position on whether congregations should help their employees pay for health insurance obtained through other sources. However, if a congregation does want to help staff pay for other health insurance, we urge the leadership to establish a clear, transparent, and equitable policy.
Increasing Taxable Income
As stated above, the simplest way to help an employee pay for other health insurance is to increase the employee’s taxable compensation. But because the increase cannot be contingent upon the employee’s purchase of coverage, nor can the employer require substantiation of the premium expense, it is all but impossible to establish a policy based on individual employees’ actual costs. We suggest making this added income a separate line in payroll – for tracking purposes as well as because it is not included in benefits calculations.
Leaders, we encourage you to carefully consider economic justice and equity when creating policy and applying it across the staff team.
Other Arrangements
Additional options for helping your employees pay for other health insurance may include:
If an employee has individual insurance
Your congregation may be able to pay for an employee’s individually sourced health insurance by establishing an arrangement pre-approved by the Internal Revenue Service (IRS) for such purpose, such as a qualified small employer health reimbursement arrangement (QSEHRA) or an individual coverage health reimbursement arrangement (ICHRA). Consult your tax or legal advisor or refer to these Healthcare.gov pages about QSEHRAs and ICHRAs for more information.
Note: These arrangements are incompatible with group health plans. In other words, if you offer a QSEHRA or an ICHRA plan, you cannot also offer the UUA Health Plan or any other employer-sponsored plan.
If an employee is in an employer-sponsored health insurance plan
In most circumstances, employers may not reimburse employees for the cost of other group health insurance, such as a spouse’s employer's plan, due to ACA prohibitions. (Under the limited situations when reimbursement of other group health insurance is permissible, the reimbursements must be post-tax unless the original premium was paid for on a post-tax basis – which is unusual.)
Note: QSEHRA plan funds, but not ICHRA funds (see above), can be used to reimburse for premiums and expenses associated with coverage on a spouse’s plan.
If an employee is on Medicare
Medicare's strict rules (and associated penalties) should be considered before an employer reimburses an employee’s Medicare premiums, whether on a taxable or nontaxable basis. Medicare is governed by complex regulations, including Medicare Secondary Payer (MSP) rules that apply to employers of 20 or more employees. For most employers, it is next to impossible to create a legally compliant way to pay or reimburse an employee’s Medicare costs and there are severe MSP and ACA penalties for getting this wrong. As stated above, a taxable compensation increase not contingent on substantiation of Medicare expenses may be the best option. Employers of fewer than 20 employees who still wish to implement a Medicare premium reimbursement arrangement should reference related IRS guidance provided in IRS Notice 2015-17, Q&A-3 (PDF).
Note: Medicare Supplement Plans are not subject to the above rules. If your congregation offers a supplement such as the UUA Medicare Supplement Plan, you may pay a portion of those premiums for participating staff, just as you do for regular UUA Health Plan levels.
Please consult your legal or tax advisor regarding the tax treatment of any health insurance reimbursement arrangement.
By offering the UUA Health Plan, the Office of Church Staff Finances is committed to supporting employees of Unitarian Universalist organizations in accessing quality health care that aligns with Unitarian Universalist values. In general, our staff cannot assist with non-UUA plan options, nor can we provide guidance on establishing the necessary legal plans to facilitate payments for other coverage.
The staff of the UUA Office of Church Staff Finances are not legal or tax professionals. This material is provided for informational purposes only. Congregations are solely responsible for their legal obligations. Please be aware of applicable state law and consider consulting your own legal or tax advisor for guidance.