The Affordable Care Act (ACA) took a painful leap in 2014 and destroyed the mainstay of how small businesses have provided health care coverage to employees for decades.  In the recent past, an employer would simply reimburse an employee for his or her health insurance premiums and possibly some of the out-of-pocket costs instead of having an insurance policy for the business.  The health insurance policy would be in the employee’s name.  This was very simple way to provide employees with healthcare coverage with little to no regulatory hurdles.

In 2013, it was interpreted by the government, and implemented in 2014, that reimbursing employees for their respective health insurance premiums and/or out of pocket costs constituted a group health plan and was in violation of the ACA law.  The penalties for non-compliance could be as much as $36,000/year for each employee per violation.  Nevertheless this ended most of those plans in short order likely at the expense of the employee.

However, the ACA law and its subsequent regulations does not cover all medical benefits.  There are excluded benefits that can still be reimbursed to employees.  These benefits are: dental care, vision care, long-term care policies, specific disease insurance (e.g. cancer only) policies and Medicare supplement policies.  Therefore, an employer could reimburse an employee for these types of expenses directly or indirectly as a benefit that can be exempt from the reach of the ACA law.

However, there are some rules that need to be followed to make this possible.  If you buy an insurance policy it needs to be separate from a normal health insurance policy.   An allocation of the cost will not work.  Also, the rules governing health reimbursement arrangements still apply.  So, to make the benefits tax free to the employee the plan cannot discriminate in favor of highly compensated employees or business owners.

The ACA law damaged a lot of the very practical arrangements employers had to provide health benefits to their employees.  But, there are still opportunities to provide coverage to employees with this list of excepted benefits.

Dan Busenbark
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