Individual Health Insurance | The Common Sense Solution

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A major shift from group to individual is occurring. This is largely due to rising premium costs for group health insurance.

Also, with health reform (ACA or Obamacare) in full effect, compliance is top of mind for employers, health insurance brokers, and CPAs. As employers transition to individual health insurance and premium reimbursement, there are important compliance considerations to understand and comply with.

In this 35 minute session, you'll learn:

- Cost savings and comparisons between group health insurance and individual health insurance

- 3 ways to reimburse employees for individual health insurance

- The federal regulations employers must follow to avoid costly fines

- Tips for administering a compliant, tax-free reimbursement plan in 5 minutes per month

- Answers to common compliance questions


Who Should View?

Insurance Agents, Accounting Professionals, and Employers looking to learn more about premium reimbursement and compliance.


About the Presenter:

Rick Lindquist is President of Zane Benefits, Inc., the leader in defined contribution employee health benefits. Zane works with brokers, agents and CPAs to transition clients to defined contribution healthcare solutions. Rick joined Zane in 2007 and was appointed President in 2011. He is a regular contributor to ClarifyingHealth.com and other health benefits publications. Rick received his B.S. in Economics and B.A. in Computer Science from Duke University.

Visit www.zanebenefits.com for more information or download our eBook: http://offers.zanebenefits.com/compliance-101-ebook

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Individual Health Insurance | The Common Sense Solution

  1. 1. Compliance 101 Employer-Funded Individual Health Insurance Rick Lindquist, President of Zane Benefits WEBINARS Individual Health Insurance Reimbursement
  2. 2. Group health insurance is broken. We have the solution. Join the conversation #compliance101 Zane Benefits offers simple, affordable, and compliant health benefit solutions to small and medium-sized businesses. The ZaneHealth software helps businesses save 20% to 60% on healthcare costs by reimbursing employees for individual health insurance. Our online solutions allow businesses to create compliant healthcare reimbursement plans that create happier employees, reduce costs, and save time. Zane Benefits' Partner Program is an opportunity for insurance professionals to provide clients with custom Zane Benefits solutions. Request a Partner Evaluation. DISCLAIMER The information provided herein by Zane Benefits is general in nature and should not be relied on for commercial decisions without conducting independent review and analysis and discussing alternatives with legal, accounting, and insurance advisors. Furthermore, health insurance regulations differ in each state; information provided does not apply to any specific U.S. state except where noted. See a licensed agent for detailed information on your state.
  3. 3. Additional Resources Join the conversation #compliance101 Additional FREE Resources: Small Business Health Insurance & Premium Reimbursement View all of our free eBooks, Whitepapers, and On-Demand Webinars at: ZaneBenefits.com/Resources Subscribe to our Blog at: ZaneBenefits.com/Blog
  4. 4. Your Presenter Rick Lindquist, President of Zane Benefits Rick Lindquist is President of Zane Benefits, Inc., the leader in defined contribution employee health benefits. Zane works with brokers, agents and CPAs to transition clients to defined contribution healthcare solutions. Rick joined Zane in 2007 and was appointed President in 2011. He is a regular contributor to many health benefits publications and co-author of The End of Employer-Provided Health Insurance. Rick received his B.S. in Economics and B.A. in Computer Science from Duke @RickLindquist University. #compliance101 Wiley, November 2014
  5. 5. Agenda Join the conversation 1. The Undebatable Debate 2. 3 Ways to Fund Individual Health Insurance 3. Is Tax-Free Possible? 4. Key Compliance Considerations 5. Summary / Q&A #compliance101
  6. 6. The Undebatable Debate zanebenefits.com | 1-800-391-9209
  7. 7. Overview Join the conversation A major shift is happening from group to individual. #compliance101 “The Individual Market is expected to expand to more than 150 million insureds by 2025.”
  8. 8. Join the conversation ● Group health insurance costs are unsustainable ● Individual health insurance is better value ● Individual health insurance costs less ● Individual health insurance is eligible for new premium tax credits #compliance101 “60% of Small Businesses Will Transition to Individual Health Insurance by 2017” - The Inevitable End of Small Business Health Insurance Primary Reasons for the Shift
  9. 9. The Economics Join the conversation #compliance101 Single Cost of Individual Plan $2,424 / year $7,248 / year Cost of Employer Plan $6,492 / year $18,312 / year Savings Per Employee $4,068 / year $11,064 / year Percentage Savings 63% 60% Based on 2014 health insurance costs for the state of Illinois. Source: U.S. Health and Human Services, QHP Landscape Market Medical 2014 (See data.healthcare.gov). Family
  10. 10. Why We Are Here Join the conversation Employer-funded Individual Health Insurance Is the Common Sense Solution #compliance101 The question is: “How do employers continue to offer health benefits for recruiting and retention?”
  11. 11. 3 Ways to Fund Individual Health Insurance zanebenefits.com | 1-800-391-9209
  12. 12. 3 Ways to Fund Individual Health Insurance Join the conversation Option 1 - Taxable Stipend Option 2 - Taxable Reimbursement Option 3 - Tax-free Reimbursement #compliance101 Did you know? Today, fewer than 50% of small businesses offer employees health insurance, largely because of the cost. That’s over 2.3 million small businesses that don’t offer health insurance.
  13. 13. Taxable Stipend Join the conversation Taxable stipend—All similarly situated employees receive a fixed, taxable stipend to purchase individual health insurance, whether or not they actually purchase health insurance. The employee's monthly contributions are typically added to his or her paycheck. At the end of the year, employees receive a form showing the amount of their stipend that they should report as income on their personal income tax return. Pros: ● Not a group health plan ● No compliance issues ● Very simple and easy administration (automatic payroll additions) Cons: ● Company is required to pay payroll tax on reimbursements (7.65%) ● Employees must claim reimbursements as income (20-40%) ● Employees receive money regardless if put towards health insurance premium #compliance101
  14. 14. Taxable Reimbursement Join the conversation Taxable reimbursement—All similarly situated employees are granted a fixed, defined contribution amount to purchase individual health insurance, but only receive the money if they actually purchase health insurance. Employees purchase their own individual health insurance policy and submit proof to their employer (or the employer's third-party provider). The employee receives monthly reimbursements up to the employer’s defined contribution amount that are typically added to their paycheck. At the end of the year each employee receives a form showing the amount of his or her reimbursements which should be reported as taxable income on personal income tax forms. Pros: ● Employees must show expense before reimbursement ● Feels like a real, structured Health Benefits program Cons: ● Company is required to pay payroll tax on reimbursements (7.65%) ● Employees must claim reimbursements as income (20-40%) ● Must take extra administration steps to ensure compliance #compliance101
  15. 15. Tax-free Reimbursement Join the conversation Tax-free reimbursement—All similarly situated employees are granted a fixed, defined contribution amount to purchase individual health insurance, but only receive money if they actually purchase health insurance. Employees purchase their own individual health insurance policy and submit proof to their employer (or the employer's third-party provider). Employees receive monthly reimbursements up to their defined contribution amount that are typically added to their paycheck tax-free. Pros: ● Employees must show expense before reimbursement ● Feels like a real, structured Health Benefits program ● Tax-free to employees (20-40%) ● No payroll taxes for employers (7.65%) Cons: ● Must take extra administration steps to ensure compliance #compliance101
  16. 16. Is Tax-free Possible? zanebenefits.com | 1-800-391-9209
  17. 17. Is Tax-free Possible? Join the conversation Yes. The tax code has not changed. Tax-free reimbursement of individual health insurance is 100% allowed under Internal Revenue Code (IRC Section 105). “Health insurance premiums are medical care expenses under Code Section 213(d)(1), and amounts received as reimbursement for these expenses through the HRP are excludable from the gross income of the employee under Code Section 105.” #compliance101
  18. 18. How is Tax-free Possible? Join the conversation Through a self-insured medical reimbursement plan. #compliance101 Self-insured medical reimbursement plans are a tax-free employee benefit as outlined in IRC Section 105.
  19. 19. Key Compliance Considerations Join the conversation All group health plans, including self-insured medical reimbursement plans, must comply with applicable federal rules including IRS, HIPAA, ERISA, and the ACA. ● Basic Considerations ● Key Plan Design Considerations ● Key Administration Considerations #compliance101
  20. 20. Join the conversation
  21. 21. Basic Considerations Join the conversation 1. Plan Documents and SPDs Plan Documents define what expenses are eligible for reimbursement, the amount of employer contribution, and other required details about the reimbursement plan. The SPD is the primary vehicle for informing participants and beneficiaries about their rights and benefits under their employee benefit plans. 2. Uniform Explanation of Coverage and Definitions The ACA requires that group health plans, participants, and beneficiaries receive a standardized summary of benefits and coverage (“SBC”) and a set of uniform definitions (“Uniform Glossary”). 3. Documentation History The IRS requires that employees submit proper documentation verifying their claim for reimbursement, and that supporting documentation is saved on file for ten years. **Reimbursement Plan != Minimum Essential Coverage (will not satisfy Employer Mandate) #compliance101
  22. 22. Key Plan Design Considerations Join the conversation 1. Annual Limit Compliance (Notice 2013-54) Section 2711 of the Public Health Services (“PHS”) Act, as added by the ACA, provides that no annual or lifetime limits may be placed on essential health benefits (“EHB”). PHS Act 2711 provides that annual limits and lifetime limits may be placed on benefits that are not EHB, such as health insurance premiums. 2. Preventive Care Compliance Section 2713 of the PHS Act, as added by the ACA, requires group health plans (including self-insured medical reimbursement plans) to cover basic preventive health services without cost-sharing. 3. Non-Discrimination Must treat similarly situated individuals the same. #compliance101
  23. 23. How to Comply with IRS Notice 2013-54 Join the conversation On September 13, 2013, the Internal Revenue Service and the U.S. Department of Labor released guidance addressing the issue of tax-free employer contributions towards individual health insurance policies (U.S. Department of Labor, 2013). The effect of this guidance was to make it more cumbersome, but not impossible, for employers to give employees tax-free reimbursement of premiums paid for individual health insurance. 1. Set up a Section 105 Health Reimbursement Plan (HRP) to give their employees a monthly allowance to purchase (only) individual health insurance and nothing else. Health insurance premiums are not an essential health benefit under ACA and thus an employer is not required to offer unlimited annual and lifetime amounts for employees to purchase health insurance. 2. Specify in the HRP plan documents the coverage of unlimited basic preventive care services required by the ACA. Basic preventive care is an essential health benefit under ACA. 3. Require in the HRP plan documents that employees seeking preven 4. tive care must first look to their health insurance policy. All health insurance plans starting after 2014 must cover preventive care 100%. #compliance101
  24. 24. What Happens If You Fail to Comply Join the conversation The IRS may assess an excise tax on a noncompliant group health plan of $100 per day per affected individual under Code Section 4980D. “The excise tax will not apply if the employer can show that it did not know that the violation existed (after exercising due diligence), or that the violation was corrected within 30 days of discovery of the failure.” “If the violation is due to reasonable cause and not willful neglect, the amount of the excise tax will be limited to the lesser of (i) 10% of the amount paid by the plan for the preceding year, or (ii) $500,000. The IRS could also waive all or part of the penalty if the failure is due to reasonable cause and not willful neglect to the extent that the payment of the tax is excessive relative to the failure involved. See Code Section 4980D(c).” #compliance101
  25. 25. Key Administration Considerations Join the conversation 1. 90-Day Waiting Period Compliance The ACA prohibits waiting periods over 90 days for eligible employees. 2. Internal and External Claims Appeal Process The ACA added new requirements to the internal and external appeal process including how and when procedures are communicated to plan participants. 3. 60-Day Notice of Material Modification The ACA requires employers to provide 60 days advanced notice to participants when making material modifications to their group health plan (including self-insured medical reimbursement plans). 4. ERISA Compliance The employer must not endorse specific individual health insurance policies or pay directly for them. 5. HIPAA Privacy The entity processing employee reimbursement claims receives Protected Health Information (PHI) that is required to be held confidentially under HIPAA. #compliance101
  26. 26. Summary + Q&A zanebenefits.com | 1-800-391-9209
  27. 27. Summary Join the conversation 1. A major shift from group to individual is occurring. This is largely due to rising premium costs for group health insurance. 2. There are 3 ways to fund individual health insurance a. Taxable Stipend b. Taxable Reimbursement c. Tax-free Reimbursement 3. Tax-free reimbursement is permitted under tax code -- it is plan design and administration that determines whether or not an employer is in compliance. 4. When setting up a reimbursement plan make sure you comply the key plan design and administration requirements to avoid penalty. #compliance101
  28. 28. Q&A zanebenefits.com | 1-800-391-9209 Zane Benefits 1-800-391-9209 | zanebenefits.com info@zanebenefits.com Rick Lindquist President Zane Benefits

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