Question and Answer: Using Contributions to Purchase Coverage
Question: Can an employee use a contribution through either a cafeteria plan or HRA to purchase unsubsidized individual health insurance coverage on a public exchange?
Just focusing on the rules regarding eligible expenses, an HRA can reimburse premiums for coverage obtained through an exchange. This is true regardless whether the cost of the coverage is subsidized. Of course, if the participant does receive a subsidy, only the portion of the premium actually incurred by the participant (i.e., the portion not covered by the subsidy) can be reimbursed.
The rule is different for cafeteria plans. Such premiums cannot be paid on a pre-tax basis through a cafeteria plan. Section 125 has been amended to specifically provide that coverage issued through an exchange is not a qualified benefit that may be offered through a cafeteria plan unless the employer is providing group coverage through the exchange (i.e., through the SHOP program). The rule under Section 125 applies regardless of whether the individual receives a subsidy.
-Insight courtesy of Scott Wold, Attorney, Hitesman & Wold P.A.