One way small and mid-sized businesses can rein in their health insurance costs is by limiting who they offer the benefit to, such as only offering the benefit to full-time employees. Show
Many employers have asked us whether they can take this approach a step further and offer different levels of benefits to different employees. Can an employer contribute different amounts toward employee medical insurance? The short answer is: Yes! As long as the employer doesn’t make these decisions on a discriminatory basis, offering different benefits to different employees is completely legal. This article will explore how to offer different benefits for different employee classes. What are the laws surrounding benefit eligibility?When it comes to the laws on eligibility for health benefits, the rules differ depending on how big your organization is. For example, applicable large employers (ALEs), or employers with 50 or more full-time equivalent employees (FTEs), are subject to the Affordable Care Act’s employer mandate and must offer insurance to all full-time employees. On the other hand, employers with fewer than 50 FTEs are exempt from the mandate and don’t have to provide everyone with the same level of benefits. Learn more about how employment laws differ based on your company size in our guide How can employers legally restrict eligibility or offer different benefits to different employees?If you’re considering offering different benefits to different employees, you need to make sure you’re doing it legally. Employers that want to restrict benefit eligibility to specific employees, or offer different benefits to different employees, must base their decisions on bona fide employment-based classifications. The IRS has established rules for employee classes—employers can’t make up their own. Employers must follow the IRS rules established in the New Health Coverage Options for Employers and Employees or the Final ACA Rules. To summarize these rules, the employer's distinctions must relate directly back to the employee’s status with the company. For example, the employer could restrict eligibility or offer different levels of benefits based on:
Additionally, all similarly situated employees must be treated equally. That means that employees must receive the same level of benefits within each "class" the employer created. The key is to make sure these distinctions aren't discriminatory—we’ll explore those in the next section. These rules apply to all formal health benefits, such as health insurance and health reimbursement arrangements (HRAs). However, the rules are different for taxable employee stipends. If you’re offering your employees a stipend, the rules around employee classes are looser, as a stipend is an informal benefit. You can create any employee classes or combinations of classes that you’d like. But, you still have to abide by anti-discrimination rules, and you aren’t allowed to create employee classes that specifically exclude an employee from receiving benefits. What discriminatory practices do I need to avoid with benefit eligibility and benefit features?Employers can restrict health benefits eligibility to certain employees and offer different levels of benefits to different employees. However, they can’t make these decisions on a discriminatory basis. The , Section 3 says: “The fundamental principle of the anti-discrimination laws applies in this context as in all others: if an employer provides a lower level of benefits to an individual based on a prohibited factor, it must make out a defense. If it cannot do so, its conduct will be unlawful, and cause should be found.” So what exactly are those “prohibited factors”? Generally speaking, prohibited factors include any individual characteristics protected by federal law, including:
Some states have enacted laws that prohibit discrimination on grounds like sexual orientation, marital status, or weight. Employers should consult with an attorney for further information on protected classes within each state as they relate to health benefits decisions. What about highly-compensated individuals?While it is acceptable to offer different benefits to different employee classes, employers also need to be careful about discriminating in favor of highly-compensated individuals (HCIs). An HCI is an employee who is at least one of the following:
The rules surrounding HCIs are a little different based on whether you’re offering a fully-insured or self-insured plan. Fully-insuredWith a fully-insured plan, employers pay a traditional group health insurance company a premium. They can offer better benefits (or a lower cost) to HCIs, so long as there is no cafeteria plan. While the ACA added nondiscrimination rules for insured plans that are very close to those for self-insured plans, the IRS indefinitely delayed the enforcement of these nondiscrimination rules, and they may never become effective. If the organization does offer a cafeteria plan, the plan becomes subject to the nondiscrimination rules for HCIs. Self-insuredSelf-insured plans are subject to the nondiscrimination rules under . These prohibit employers from offering HCIs better benefits or benefits at a lower cost than other employees. How PeopleKeep can help you offer a compliant health benefitEmployers who want to provide different health benefits to different employees can do so worry-free through an HRA or employee stipend with PeopleKeep. Our HRA and employee stipend administration software makes it easy for employers to design a compliant health benefit. Our award-winning customer support team can help answer any questions along the way. HRAs and health stipends are personalized benefits that allow you to reimburse your employees for qualifying medical expenses such as monthly premiums and out-of-pocket medical expenses. This makes them excellent alternatives for group health insurance coverage. We’ll cover the specific guidelines for our health benefits in the following sections. Qualified small employer HRAThe qualified small employer HRA (QSEHRA) is best for employers too small to be subject to the ACA employer mandate who want to keep things simple and offer a single benefit to all W-2 employees. Employers can specify whether they want to offer this benefit to full-time employees or full- and part-time employees. Different allowances can also be provided to employees by family status, such as single or married, or employees who have dependents. However, you can’t customize employee classes by job title, salary or hourly, seniority, or whether the employee works in or out of state with a QSEHRA. Get our full guide for everything you need to know about offering a QSEHRA Individual coverage HRAThe individual coverage HRA (ICHRA) is one of the most flexible plans on the market, allowing employers to set different allowances and determine eligibility for various eligible employee classes. With an ICHRA, you can use the following classes of employees:
Get our full guide for everything you need to know about offering an ICHRA Integrated HRAThe group coverage HRA (GCHRA), often called an integrated HRA, is for employers who offer employees a traditional group health plan and want to assist employees with expenses like deductibles, copays, and eligible over-the-counter expenses. Employers can set different allowances and determine eligibility for the following classes of employees:
Get our full guide for everything you need to know about offering a GCHRA Health stipendA health stipend is a taxable health benefit that provides more flexibility and customization than an HRA or group health insurance. This allows you to offer W-2 employees, 1099 contractors, and international workers benefits. It’s also an excellent option for organizations with employees who receive advance premium tax credits (APTC). Since health stipends are taxable, you must report any reimbursements as taxable wages on your employees’ W-2s. If you don’t need the extra flexibility, a tax-free HRA is often a better fit for most organizations. With PeopleKeep, employers can set different allowances and determine eligibility for the following classes of employees:
See the difference between HRAs and a health stipend with our comparison chart ConclusionOrganizations can absolutely offer different benefits to different employees, as long as they use job-based classifications to ensure they don’t discriminate and are following the IRS-established rules on employee classes. Want help offering a compliant health benefit? PeopleKeep is here to help! Schedule a call with a personalized benefits advisor today! This blog article was originally published on September 23, 2020. It was last updated on May 24, 2022. What is a group insurance policy?What Is a Group Health Insurance Plan? Group Insurance health plans provide coverage to a group of members, usually comprised of company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer's risk is spread across a group of policyholders.
Which insurance is purchased by an employer for the benefit of a group of employees quizlet?A group health plan is an employee welfare benefit plan established or maintained by an employer or by an employee organization (such as a union), or both, that provides medical care for participants or their dependents directly or through insurance.
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Insurance that is provided to the employees of a company or members of a union
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