Q & A: Using Contributions to Purchase Coverage

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.

2 comments on “Q & A: Using Contributions to Purchase Coverage

  1. If the application ask is your employer paying a portion of your premium I understand it dis allows you from receiving a subsidy?
    How would this work with a HRA then?

  2. kloging says:

    Thanks for your question. As of now, we do not know how public exchanges will address the situation where an employer has an HRA and how the individual’s response will impact their subsidy. Since an HRA is a health plan, the individual with an HRA could indicate that their employer is paying a portion toward group coverage if the HRA is intending to qualify as minimum essential coverage. If the HRA is not intending to qualify then the individual will likely respond that their employer is not paying a portion of their group coverage and therefore allow the employee to receive subsidies. We will need to see if the public exchanges address HRAs.

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