Can my VA employer pay for individual health insurance?
June 11, 2009 3:26 PM Subscribe
Can my Virginia employer, a small business/sole proprietorship, pay for my individually-issued health insurance premium?
I just started a new job and the owner, a sole proprietor, has offered to pay for up to $250 a month in individual premiums for me and my coworker: she doesn't want to get group coverage because, with only two employees, if one of us leaves then the other will lose insurance also.
I went through the application process for Anthem BlueCross of Virginia only to find at the end that I had to agree to the following statement: "the Anthem Blue Cross and Blue Shield policy, if issued, shall not be used as an employer-provided health care benefit plan. I certify that no employer of any person covered under the Anthem Blue Cross and Blue Shield policy may pay any premium for the Anthem Blue Cross and Blue Shield coverage, directly or indirectly, including through wage adjustment."
Some googling found examples of employers in other states paying for individual premiums, but I couldn't find any Virginia examples. My boss is offering to just give us a raise instead, but if possible I'd like to have the tax-free advantages from an employer-paid plan.
Does anyone know if any Virginia insurers are amenable to such arrangements?
I just started a new job and the owner, a sole proprietor, has offered to pay for up to $250 a month in individual premiums for me and my coworker: she doesn't want to get group coverage because, with only two employees, if one of us leaves then the other will lose insurance also.
I went through the application process for Anthem BlueCross of Virginia only to find at the end that I had to agree to the following statement: "the Anthem Blue Cross and Blue Shield policy, if issued, shall not be used as an employer-provided health care benefit plan. I certify that no employer of any person covered under the Anthem Blue Cross and Blue Shield policy may pay any premium for the Anthem Blue Cross and Blue Shield coverage, directly or indirectly, including through wage adjustment."
Some googling found examples of employers in other states paying for individual premiums, but I couldn't find any Virginia examples. My boss is offering to just give us a raise instead, but if possible I'd like to have the tax-free advantages from an employer-paid plan.
Does anyone know if any Virginia insurers are amenable to such arrangements?
Best answer: The tax-free advantage comes from your employer setting aside part of your wages (pre-tax) into what is called a "cafeteria plan" or "Section 125 plan." These are pretty cheap for companies to start, and routing enough of your wages through that to pay for your premiums--even if the company itself doesn't contribute a dime to your coverage--ends up to be a pretty good deal for both you and your employer. You save from 15-35% on the cost of your premiums (depending on your marginal tax rate) and your employer also saves around 7-10% of the cost of your wages, because they don't have to pay payroll taxes on any of the money that you use to buy health insurance. It's a pretty sweet deal on both sides.
However, it's a somewhat murky area of health law what the legal implications are if you pay for an individual policy (that is, in the nongroup market) using a Section 125 plan. As I understand it--and I'm not a healthcare lawyer, although I've heard some speak about this issue, so this ain't legal advice--the IRS doesn't have any problem on the tax end with routing premiums for nongroup plans through Section 125 plans. However, your employer could get in some hot water with the Department of Labor and other federal agencies that regulate employer-based insurance, because using a Section 125 plan may (or may not, I think the law is not completely settled on this point) mean your employer is bound by all sorts of laws like ERISA/COBRA/HIPAA to provide you certain benefits and certain protections even if they're not buying the insurance for you and have no ability to provide those protections for you. So, setting up this sort of deal in a way where you get the tax benefits and your employer doesn't have to bother with setting up a group plan is definitely serious get-a-lawyer territory for the owner of the business.
I point all this out because (1) your employer may not realize that while setting up a small-group plan is a pain, especially if one employee leaves* and the insurance question has to be figured out again, it's a pain that will SAVE HER MONEY, potentially a lot, in terms of payroll taxes; and (2) it's probably less of a pain (on her end) to suck it up and sign up for a small group plan even given the uncertainty than it is to pay a lawyer specializing in this sort of stuff to delve into what legal liabilities she's exposing herself to by trying to pay for her employee's premiums in the individual market.
*As a side note: has she considered making herself a member of the group? That way even if one of her two employees leaves, the group will still have two people in it. She'll also save money in terms of pre-tax premiums if she's currently privately insured. Not really sure how close you are to her or how to broach that subject, though.
posted by iminurmefi at 4:17 PM on June 11, 2009
However, it's a somewhat murky area of health law what the legal implications are if you pay for an individual policy (that is, in the nongroup market) using a Section 125 plan. As I understand it--and I'm not a healthcare lawyer, although I've heard some speak about this issue, so this ain't legal advice--the IRS doesn't have any problem on the tax end with routing premiums for nongroup plans through Section 125 plans. However, your employer could get in some hot water with the Department of Labor and other federal agencies that regulate employer-based insurance, because using a Section 125 plan may (or may not, I think the law is not completely settled on this point) mean your employer is bound by all sorts of laws like ERISA/COBRA/HIPAA to provide you certain benefits and certain protections even if they're not buying the insurance for you and have no ability to provide those protections for you. So, setting up this sort of deal in a way where you get the tax benefits and your employer doesn't have to bother with setting up a group plan is definitely serious get-a-lawyer territory for the owner of the business.
I point all this out because (1) your employer may not realize that while setting up a small-group plan is a pain, especially if one employee leaves* and the insurance question has to be figured out again, it's a pain that will SAVE HER MONEY, potentially a lot, in terms of payroll taxes; and (2) it's probably less of a pain (on her end) to suck it up and sign up for a small group plan even given the uncertainty than it is to pay a lawyer specializing in this sort of stuff to delve into what legal liabilities she's exposing herself to by trying to pay for her employee's premiums in the individual market.
*As a side note: has she considered making herself a member of the group? That way even if one of her two employees leaves, the group will still have two people in it. She'll also save money in terms of pre-tax premiums if she's currently privately insured. Not really sure how close you are to her or how to broach that subject, though.
posted by iminurmefi at 4:17 PM on June 11, 2009
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posted by forforf at 3:44 PM on June 11, 2009