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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.

Can Employer Contribute to Employee's Covered California Subsidized Health Plan Cost?

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Question: I have a very small business (s-corp): 2 employees (myself + full-time employee). The employee currently has a subsidized plan under covered california. I would like to help pay for the employee's health care, but it seems like the employee would lose their subsidy if I did so. When getting quotes I saw that even if I paid 65% of the premium (of the employees current plan), the employees would still be losing over $100/month. Is there any way I can contribute via a cafeteria plan (IRS 125) or similar and they can keep their individual plan? Basically, some way I can contribute that will maintain their subsidy eligibility but not increase their taxable income. Note: my employee is full time and earns > $18/hour. I am covered by my spouse.

Answer: A Health Reimbursement Arrangement (HRA) would allow the employer to reimburse premium and/or out-of-pocket medical, dental, and/or vision expenses up to $4,950 for employee-only coverage and $10,000 for family coverage. Employer contributions under an HRA are pre-tax to the employee so wouldn't increase their reportable income. Employees participating in a small business HRA can access the ACA premium tax credit, but the amount of the credit will be reduced dollar for dollar by the HRA amount, so the employee can't double dip.

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Proposed regulations from the Departments of the Treasury, Labor, and Health and Human Services to expand health reimbursement arrangements (HRAs) are a significant development in the larger personalized health benefits movement, according to PeopleKeep, the leading provider of personalized benefits automation solutions to small businesses.

Specifically, the regulations offer four major accomplishments for personalized benefits:

They expand availability of personalized benefits to businesses of all sizes. Although the QSEHRA is an effective and important vehicle for personalized benefits, it’s currently limited to businesses with fewer than 50 full-time employees. By expanding personalized benefits, the Departments expect to reach more than 800,000 additional businesses and 10 million employees.

They remove caps on employer contribution. Under the new regulations, businesses could give employees as much or as little as they’d like to put toward health care costs, removing a limitation that is impacting many businesses currently using a QSEHRA.

They create a special enrollment period for certain personalized benefits. Individuals who gain eligibility for the QSEHRA or the new individual-integrated HRA will have access to a special enrollment period during which they can purchase coverage. Previously, individuals with a QSEHRA had to wait for open enrollment or a qualifying life event to get coverage.

They expand businesses’ ability to leverage benefits as they compete for talent. As the job market grows more competitive, businesses need greater benefits flexibility to hire and keep talented employees. By allowing businesses to make distinctions between various employee classes, the regulations support businesses in that goal.

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