Premium Reimbursement - What non- employer sponsored premiums qualify?

[Guest Dick Boever]

A client has asked if his employees purchasing individual health policies can pay the premiums with pre-tax dollars. I have searched CCH, RIA and BNA and have virtually no guidance. I need references or sites. I have spoken with a benefits attorney, a CPA specializing in benefits and a vendor of plan 125 documents and received three different opinions. I have reviewed several documents that don't address the issue. I did find one individual that said it must not be a part of the FSA's. If not, what is the best way to handle reimbursement? What premiums are allowed?

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[Guest jkirschbaum]

I do not think you'll find a specific cite to answer your question specifically. However, Sec. 106 permits employer contributions to group health plans to be free of tax. Sec. 125 (a) & (d) permit employees to choose between cash and benefits (including a 106(a) benefit) - see P. Reg Sec. 1.125-2 Q&A 4 and P. Reg Sec. 1.125-1 Q&A 5. P. Reg. 1.125-1 Q & A 6 states that the employer contributions can be made through a salary reduction agreement.

So, while it cannot be done through an FSA (see p. reg. 1.125-2 Q & A 7 (a) and (b)(4)) it can be done if the employer pays the premiums to the insurers under its 106 plan. I assume the reason the employer is doing this is to avoid having to get involved - but it can be done.

[Joe Priselac]

In informal discussions with Harry Beker, the IRS guru for Section 125, he agreed that you could in fact create a reimbursement account for non-employer sponsored health insurance premiums. The key is that it has to be a separate account with a separate election. The basis for this opinion is Rev. Rul.61-146 1961-2 C.B.25. Our plan documents reflect this separation. You can not reimburse for contributions towards the costs of another employer sponsored medical plan.Most of the costs we see run through this account are for health insurance premiums for college students.

[SLuskin]

We also have relied on Harry Becker for this and have, for the clients who want it, included a totally separate reimbursement account for these premiums.

[Guest MKazmer]

I have an client who has a 125 plan in place and is canceling group coverage for his employees in favor of individual policies. He is paying 50% of the premium and wants to know if the employee portion can still be taken pre-tax under his 125 plan. I have gotten confusing answers to my questions on this - can anyone be of help as to if this is possible and if so, how to amend his documents or what else he needs to do. Thank You Melinda Kazmer

[Guest msearle]

I believe the answer to your question is in the above comments. I too have been in contact with Harry Beker of the IRS and it is my understanding that it can occur because of revenu ruling 61-146.

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