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Covered California Q&A

Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Reimbursement Employee Premiums?

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Question: I own a company with 9 employees. They buy their own coverage through Obamacare. I started an HRA (Health Reimbursement Arrangement) four years ago to reimburse them for their out of pocket expenses, including their net premiums. Now i’m hearing that you can’t do that anymore. What’s the truth?

Answer: What you are describing is referred to a standalone HRA - designed to work with individual insurance coverage. The IRS says, a standalone HRA cannot be used to reimburse employee premiums. The most recent guidance from the IRS - IRS Notice 2015-17.pdf provides additional clarity, but it provides no wiggle room for to those software vendors or third party administrators (think Zane Benefits) who continue to imagine ways to get around the standalone HRA rules. Employers with standalone HRAs have been giver until June 30, 2015 to get rid of them. Only HRA plans that are attached to a conforming group plan can be used going forward. Agents and brokers need to be very careful that they aren’t the ones left accountable for bad advice.

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Hello, You do not want to do this. You cannot use a pre-tax HRA to pay for premiums for your employees. The fines for doing this can be as high as $100 per day per employee. You should consider traditional HRA wrapped with a High Deductible Group Health Plan. Using this method, you can lower the monthly premium for employees and the employer, but still provide a rich benefit.

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