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Employer-sponsored coverage (spouse's employer's insurance)

My employees are on their spouse's work insurance.


A common speed bump for employers considering a reimbursement plan is understanding how employees that have medical insurance coverage through a spouse's employer will benefit.

This is called employer-sponsored coverage. The most common example: employees having coverage through a spouse. There are two "types" of major medical insurance:

  1. Individual: meaning it is purchased by a person, an individual, as opposed to an organization. Individual coverage can cover an entire family. "Individual" refers to the purchaser. Individual insurance follows the individual, it is not tied to employment.
  2. Group: meaning it is purchased by an organization and offered to employees of the organization. Group coverage follows the organization, when one leaves the organization the coverage does not follow.
All group coverage is sponsored by an "employer" or organization. Most employers offering group coverage also provide a mechanism for employees to contribute their share of the premium, if any, through a pre-tax payroll deduction.

Why is that important?


Under the current law, everyone is supposed to carry minimum essential coverage. Everyone is supposed to have insurance. So, if you are offering a reimbursement benefit it is a safe bet that just about everyone is paying for insurance. Even those employees that are on their spouse's plan. In most cases there is a pre-tax deduction coming out of every paycheck that pays for their coverage.


Options


When you are completing the plan design form you will choose whether or not your plan will allow for the reimbursement of employer sponsored premiums:



  1. ARE
  2. ARE NOT

 When allowed, employees may seek a reimbursement for the amount being deducted from their spouse's paycheck to pay for their insurance. All they have to do is:

  1. Submit a copy of their insurance card;
  2. Submit a copy of the spouse's pay stub showing the deduction
  3. Submit a recurring claim form, so they don't have to submit stubs every pay day;
  4. Submit a signed acknowledgement of tax responsibility.

Acknowledgement of Tax....

Remember how employers offering group coverage also provide a mechanism for employees to contribute their share of the premium through a pre-tax payroll deduction. Yes, so, the IRS is not going to allow them to receive a tax-free reimbursement for an expense that was paid for with a pre-tax deduction. The "acknowledgement" is the employer's way of informing employees that they are responsible for accurately reporting reimbursements that are ineligible for tax-favored treatment. No double-dipping. 

Reporting the reimbursements is actually very simple. The employee adds up all the reimbursements they received for payroll contributions to their spouse's group insurance and reports the total on line 21 of their 1040, "other income."

What if we do not allow employer sponsored premium reimbursement?


The question is, why wouldn't you? But, if you did not allow it, employees could still use the allowance for eligible out-of-pocket expenses, presuming you did not opt for the POP plan, and as long as they are not contributing to an HSA. 

For answers about having an HSA and an HRA at the same time see this post.






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