Can I Just Give Employees Extra Pay Towards Getting Their Own Benefits?
This used to be a thing. Employers just paid employees more salary so that the employee would stay off their expensive benefit plan. There were a lot of problems with that strategy, if you can call it a strategy.
First, by increasing the salary of an employee, you increase the payroll taxes. That means both you and the employee are going to pay more in taxes.
Next, The ACA came a long and said many employers are required to offer benefit plans. So, just paying a higher salary doesn’t cut it anymore. Now the IRS can penalize you for not offering an affordable minimum value health insurance plan.
Finally, by law, if you have a fringe benefit plan, you cannot actually keep employees out of it. So you may agree to a higher salary this year when you hire the employee and they don’t take your benefits, but next open enrollment… They can jump in and now you’re paying higher taxes, higher salary, AND benefit premiums!
So what is the alternative? Well, there is good news!
New Laws Allow Employers to Offer Employees a Cash Stipend In Their Pay that Can be Used Towards a Qualified Plan in the Private Individual Health Insurance Market.
That’s right. Finally, the law has caught up to business (mostly). Tax-free dollars for premiums. Employer, meet ICHRA. ICHRA, introduce yourself to this nice employer.
Demystifying ICHRAs: A New Health Insurance Option
You probably haven’t heard the term, “ICHRA.” What is this new term referring to? It stands for Individual Coverage Health Reimbursement Arrangements and here is how we explain them to employees:
In essence, an ICHRA allows an employer to help reimburse you for buying your own personal health insurance plan.
Rather than restrict you to only one group health insurance policy, your employer sets aside a defined contribution of pre-tax dollars each month to put towards your choice of individual health coverage. For example, they could offer to reimburse up to $300 per month towards your independently purchased insurance premium.
You then get to shop the open insurance market for a quality, affordable health plan that meets your specific needs, preferences and budget levels. Maybe you value lower deductibles over premium costs. Or want access to certain specialists out-of-state. Or you want your family members to be covered under differing policies. You choose what works best for your situation. The employer’s broker can help you find and secure the right coverage.
Once you elect coverage, you submit the premium invoice to your employer’s payroll department. They then reimburse you up to the promised amount ($300 here) on a tax-free basis to help cover your personal health insurance costs. You pay any premium charges beyond the defined company contribution.
The bottom line is that an ICHRA grants you much more freedom and flexibility to select health plans tailored to your priorities, at lower group premium rates.
How Can I Set This Up For My Employees?
This is not a DIY situation. You need the correct structure and formal documents in place as well as a way to set up payroll and help employees elect a plan of their own. The best way to do that is to use a broker that has expertise in ICHRA’s. Employee Benefits NJ has brokers who really know the ins and outs of these marvelous new benefit vehicles.
Schedule a meeting with us today to get started on your admin-free journey.
