New Tax Advantaged Health Insurance Options for Household Employees

The health insurance marketplace continues to change, and starting 1 January 2020 employers of nannies, senior caregivers, and other household employees will have a new choice for assisting or supporting their employees with their health insurance and other health care expenses.

The strong employment situation we are enjoying today means there is even more competition for the top home care talent. Many employers are finding that a compensation package - including both wage and benefits - is necessary to hire and retain the highly qualified workers. Studies consistently show that workers prize health benefits and paid time off over all other workplace perks.

Remember, an employer sponsored tax advantaged healthcare reimbursement benefit is a part of a total compensation package, and tax advantaged healthcare reimbursement can BOTH reduce employer out of pocket expenses and increase caregiver take home pay!

Since 2017 the only option small employers had was a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement). Starting January 2020 ICHRA (Individual Coverage Health Reimbursement Arrangement) enters the mix. Which one is right for you?

Both the QSEHRA and ICHRA allow employers to reimburse employees tax-free for individual health insurance premiums and other medical expenses. This means that neither the employer or employee pay payroll taxes on the benefit, and the employee does not pay income tax either.

Both plans allow the employer to establish the total budget for the benefit (QSEHRA not to exceed annual limits). Employers find this attractive because they can set it and forget it, not being concerned with the changing costs of the employee's underlying health insurance coverage. Additionally, a qualified healthcare reimbursement plan is sheltered from employment taxes (7.65% for both employer and employee) and the nanny's or caregiver's income taxes.

Both plans can be used to reimburse costs for both "qualified plans" and "qualified expenses." And lastly both plans require formalized (but not complicated) plan documents and notice. HWS has arranged an outsourced administrative option from Take Command Health that will provide you plan documents and handle the administration of approving claims and distributing the reimbursements, including tracking annual limits. You will receive a 30% discount when you use this link to enroll. 

KEY TAKE-AWAYS

• Your covered employee must indicate on their account on their state's health insurance exchange that they are covered by employer sponsored healthcare.
• If your household employee is covered by a spouse's group health plan and you wish to subsidize her out of pocket co-pays, prescriptions, eyeglasses or dental, QSEHRA is the best option.
• If your contribution will be less than the amount of the household employee's anticipated tax credit for an ACA compatible plan, a QSEHRA is the best option.
• If you plan to contribute more than the QSEHRA maximum limits for your household employee, you must choose the ICHRA.
• The ICHRA  or QSEHRA you offer is employer-sponsored health coverage. This is important to know and communicate to your employee when she applies for health insurance coverage on the Exchange.
• Important to note if hire a household worker who currently does not have insurance, and you negotiate a compensation package that includes a QSEHRA or ICHRA benefit with your new employee, this is a "qualifying event" and the uninsured employee has 60 days to do a special health insurance enrollment (they do not need to wait for open season).
• You and your household employee need to work together to determine which plan is best for your circumstances and the employee's circumstances.

WHICH OPTION IS BEST?

The best option for an employer and their household employee is dependent on multiple circumstances, however for the majority of our clients a QSEHRA is the more flexible, presuming that the employer does not plan to contribute more than the annual limits.

In situations where the employer contribution is modest (say $200 per month or $2400 per year) most household employees will find that the QSEHRA is a good choice, as the nanny or other household employee may still remain eligible for the residual tax subsidy on their ACA compliant plan and there is no possibility of exceeding annual plan caps.

A  married household employee with access to coverage on their spouse's employer's group health insurance plan will find the QSEHRA is absolutely the best option. For a single household employee whose employer is offering reimbursement in excess of the applicable tax subsidy both plans are helpful, and the ICHRA may be better if the employer contribution is in excess of the QSEHRA caps.

World Bank clients responsible for 100% of their G-5 domestic's health insurance expense will likely find the ICHRA is a better option as there are no annual limits and the G-5 domestic will not have access to a spouse's group health plan.

Most importantly, please remember that the tax advantaged reimbursement plans are a part of a compensation package, and an analysis of the tax implications of the total compensation package is needed to assess the best option for both employer and employee. 

RESOURCES:

OUTSOURCED SOLUTIONS FROM TAKE COMMAND HEALTH

ICHRA MODEL PLAN DOCUMENTS

REQUIRED ICHRA NOTICE TO EMPLOYEES

QSEHRA MODEL PLAN DOCUMENTS