HRA and premium reimbursement

[Guest lmccormick]

I understand that it is possible for an employer to directly reimburse an employee for their individual health insurance premiums. In fact I learned that here Rev. Rul. 61-146.

So here is the question. Our company has an HRA plan (employer funded) for all employees. Each are given $1000 a year to spend on medical expenses and it rolls over from year to year. Nobody uses it for premiums because they don't need to but could if they wanted to.

We plan to hire an individual in need of coverage and planned to offer to reimburse him up to $500 a month for family health insurance premiums upon his submission of proof of coverage/premium statements.

Can we do this outside the standing HRA. The new employee would get that too but do we have to offer all the old employees the same "deal" as this new employee? Our arrangement is part of salary negotiation and has been included because we do not offer group coverage due to our small size and it being so cost prohibitive.

Do you see any problems with our proposal?

[Don Levit]

I see no problems with your proposal. I assume you are alluding to any discrimination issues?

What your company is doing is what should be duplicated much more: reimbursing those individuals who have initiated their own health insurance program.

My only concern is possible "reverse" discrimination. Since this employee would not "participate" in the HRA, would this be an issue, due to comparability of contributions?

Don Levit

[Guest lmccormick]

Don, first let me thank you for your response. I'm grateful to have folks willing to help educate me on these issues.

The employee we wish to reimburse for private health insurance premiums will also be given the same amount of employer provided funds via the HRA that everyone else gets.

What I was afraid of is that if we offer to reimburse him for his private health insurance that we are discriminating by not offering to do it for everyone else (only two folks). If we were to have done that all along it would have had to reflect in the employee's salary so we are not in a position to suddenly offer it.

Is this reimbursement something we may just "do" or must it be done under the umbrella of some sort of official policy like an HRA?

If we may just do it then what is the authority that allows us to do this and is it indeed OK not to offer it to everyone?

[Don Levit]

The authority is the Rev. Rul. you cited. The employee pays his premium with after-tax money. The employer reimburses the employee, and deducts it as a medical expense. The employee does not have to then report the premium as income.

As I recall, the Rev. Rul. dealt with 3 different situations, all involving one policy. I don't think it involved more than one individual policy. Whereas you don't have that situation, maybe someone else would know if there would be discrimination for reimbursing different amounts for different individual policies. My guess is this would be part of one's salary, just as group insurance is. Single employees get "less" of a monetary benefit than those with a spouse or children.

Don Levit