Reimbursement Vehicles and the ACA: Impacts for Employers
Many small churches and ministries provide health care coverage for their staff by allowing employees to purchase individual policies in the marketplace. Often, small employers will pay the premium directly to the insurance company or reimburse the employee for this coverage.
The Affordable Care Act (ACA) does not make allowances for the direct payment of premiums for an individual policy or reimbursement to an employee for the cost of an insurance premium. Employers who use this method to provide employee medical coverage may face tax penalties. Additionally, the contributions made toward this coverage will be considered taxable income to your employees.
To avoid the penalties without lessening the benefit to employees, your organization can:
- Replace your employees' individual medical coverage with a group health plan, like those provided at GuideStone. We offer group coverage for employers with as few as two employees.
- Increase employee salaries to allow them to directly cover the premium for individual coverage. Note: You cannot stipulate that your employee use the increased salary to pay for insurance. Remember, this additional salary will also be subject to regular income taxes and SECA.
Important notice: GuideStone's Group Plans and Personal Plans are considered group health plans under the ACA. GuideStone does not issue individual medical policies; rather, GuideStone makes available multiple employer, self-funded church health plans as group coverage.
If you are an employer with fewer than 50 full-time equivalent employees, you may be affected.
Individual health coverage is purchased by the employee in the individual market where each employee receives a separate bill. Employers will face penalties if they continue to pay for or reimburse employees for individual health coverage.
Employers who have group health coverage arrange the health coverage for their employees. A group bid is provided to the employer, the employer selects the coverage that will be offered to their employees, and the employer receives a single bill with all covered employees listed on that bill.
Yes, there are some exceptions.
- Employees covered under GuideStone's Group Plans or Personal Plans are considered to be covered under a group health plan, and, therefore, no action is needed.
- Employers who contribute to coverage under a one-employee plan are exempt from the new penalties.
- Other exclusions include stand-alone accident-, dental- and vision-only plans.
The penalty assessed is $100 per employee, per day, per violation.
Premiums for Medicare Part B and/or Part D are included in the new taxability rules. Therefore, Part B or Part D premiums can be reimbursed only if they are offered in conjunction with a group health plan. Medicare Supplement Plans, however, are the exceptions from these rules.
Q: We have two employees — our pastor and our children's minister. Our children's minister has coverage through her husband's employer. Therefore, we reimburse only the pastor's premium, which he purchased in the individual market. Are we subject to the new rules?
A: Because you are contributing toward the premium for only one employee, you are not subject to the new rules. However, if you decide to contribute to both employees' health coverage, you will need to purchase group health coverage in order to stay in compliance.
Q: Same situation as above, except we also reimburse our children’s minister for the cost she pays to her husband’s employer for her coverage. Will we be subject to the new taxation rules?
A: Because you are contributing to the cost of coverage for two employees, you are subject to the rule. You must purchase group health coverage if you wish to make contributions to health coverage for both employees and avoid these new penalties.
Q. Our church reimburses our music minister and our pastor for their individual health insurance premiums. However, we do this on a post-tax basis. Are we in compliance with the new rules?
A: You are not in compliance. Whether payments are made on a pre or post-tax basis, an employer cannot contribute to individual health insurance for more than one employee.
Q: We have one employee for whom we pay coverage at GuideStone and a second employee whom we reimburse for coverage from another provider. Since we have one employee at GuideStone, are we exempt from the taxation?
A: You are not exempt. While you will not be assessed a tax for the coverage on the GuideStone-covered employee, you will face a fine for reimbursing the employee who has coverage through another provider, as that is considered individual coverage. To avoid the penalty, you have two choices:
- Move both employees into a group health plan offered by GuideStone or another carrier.
- Discontinue contributions for both employees. Some employers will choose to increase salaries so the employees can continue to purchase their own coverage on the individual market. Remember, employers cannot stipulate the increased salary be used for insurance.
Q: We do not provide premium payments for our employees’ health insurance coverage. However, when they visit the doctor or need a prescription, we reimburse them for those costs. Is this acceptable under the new taxation rules?
A: This arrangement is not allowed. If the employer reimburses out-of-pocket medical expenditures, the employer will be subject to these penalties. The employer should cease reimbursing employee out-of-pocket medical costs immediately.
Q: Our church has a group health plan, for which we pay the premiums. Additionally, we reimburse employees for out-of-pocket expenditures incurred at the physician’s office or the pharmacy. Are we in compliance?
A: It depends. If your group health plan is integrated with a Health Reimbursement Arrangement (HRA), you are in compliance. However, reimbursements outside of an HRA will subject you to these penalties.
Q: Our church provides a salary package to each of our two pastors. This package is intended to cover both salary and any insurance that they wish to purchase. Are we out of compliance?
A: Technically, you are not out of compliance. However, communicating with your pastors on the intent of this salary package should be done very carefully. Compensation to your pastors must be provided without the premise of being used for health insurance. Additionally, GuideStone recommends against the package approach. Learn more about how to structure your staff's compensation in a way that lessens the tax burden on your ministers by visiting our compensation planning resources.
Q: Our church does not provide any health care-related expenses for any of our staff members. Will we now be required to cover these expenses?
A: For most churches and ministries, no. However, the ACA requires employers, including churches, who have 50 or more full-time or full-time equivalent employees to provide qualifying coverage for their employees or face penalties. Please visit our Employer Shared Responsibility Provision page for more information.
Reimbursement Vehicles and the ACA: Impact for Employers Fact Sheet