Can I pay for my employee's health insurance as a reimbursement?
- Claire Baker
- Feb 7
- 2 min read
Updated: Feb 15
Somebody out there needs to hear this: You’re not supposed to pay your employees’ health insurance premiums as a reimbursement.
Most employers offer group health insurance where everyone at the company gets to pick from the same menu of plans and the company pays a pre-determined portion.
I’m not talking about them.
I’m talking about the small business where an employee is on their spouse’s insurance or a Marketplace plan and the company just reimburses them for all or part of the premium like a regular business expense.
You’re not supposed to do that.
And yet I see it all the time.
Here’s how you’re actually supposed to handle that situation:
Individual Coverage Health Reimbursement Account (ICHRA)
To oversimplify: This is just a document that makes sure that the person is using the money for health insurance and not a car payment or something.
Its whole purpose is to confirm that the alternative health plan it pays for complies with minimum coverage standards and you’re offering it to everyone.
Qualified Small Employer Health Reimbursement Account (QSEHRA)
To oversimplify: This lets small businesses reimburse people for Marketplace plans rather than offering identical plans through the company.
Its whole purpose is to make sure no one is double-dipping on government subsidies.
And that you’re offering the same deal to everyone.
Cash in lieu
To oversimplify: If you pay someone who waives your insurance a portion of the premiums the company WOULD have paid, they need to actually be on another private plan.
It can’t be a Marketplace plan.
And it needs to meet minimum coverage standards.
And you need to collect documentation that proves it.
And you need to offer the same deal to everyone.
And you need to tax that money.
All of these options are pretty cheap. Basically you’re just
→ Paying the administrative fees of making sure that people are following the rules.
→ Documenting in your handbook and benefits materials that the deal is available to everyone.
The devil is in the details.
Best to hire someone to make sure it’s handled compliantly before an auditor catches it. If they do, both the business and the employee will need to fork over extra money to the government.
People don't like when that happens.
👋 I’m Claire. I see this All. The. Time.
I usually let people know once that it’s a compliance risk, but I don’t push it unless asked. Then I gradually get permission to adjust payroll settings, add language to written materials, and quietly sort it out with affected employees one by one.
No reason to make people feel bad for trying to mitigate the cost of healthcare.
Need help with your benefits and payroll compliance?
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