HRA for one employee

[Guest Morsmanj]

Here is an odd situation. I tried to find a similar situation on the boards, but no luck.

Our company with 51 employees sponsors a conventional group health insurance plan through a major carrier, for which we pay 85% of the premium. We have one employee who lives in Dallas, Texas (we are in Kansas). Our carrier has no group business in Texas except an HMO in the San Antonio area. Coverage through the carrier's national network is only available for employees who are traveling in Texas, not those who are Texas residents. Consequently, he is not eligible for coverage under our group plan, so he was forced to go to the exchange to purchase individual coverage that is roughly equivalent to that of our group plan.

We would like put him in the same position as if he worked at headquarters. My question is whether we can set up an HRA for just him so the employer portion of the premiums can be reimbursed on a tax-free basis, or will we have to report the premiums paid as taxable income and gross up his wages? We have a number of other employees who are out of state, but they are covered under our plan, and he would be too if he didn't live in Texas.

Thanks!

[J Simmons]

You will need to give him a taxable 'bonus'. Don't designate that it is for health care or premiums, and don't require proof of coverage. Putting an upper dollar limit (e.g., the amount of the premium cost) on what the company will pay for health care is now ver boten. See IRS Notice 2013-54 and DoL Tech Release 2013-3.

[Guest Morsmanj]

Thank you so much for your very prompt response, John. I was afraid this would be the case.

I noticed that the effective date is plan years on/after 1/1/14. However, our plan year begins 12/1. It is our understanding that the carrier's plan will be approved by the Texas Insurance Commission some time in 2Q-3Q of 2013, after which he will be able to participate in our plan. Looks like we might be able to skate in under the wire since our plan (and his individual plan) began on 12/1/13.....