New Rules for Health Insurance for Churches in 2015

The Presbyterian Church in America’s Retirement and Benefits, Inc. (RBI) has prepared a short summary outlining the new rules under the Affordable Care Act

In brief, it is no longer possible for churches to provide tax-sheltered reimbursements to their pastors or other employees for individually purchased health insurance coverage. The churches may assist employees by increasing taxable compensation that can be used for anything (though they cannot increase with provision that the increase must be used for health insurance), but under the ACA, it will be reported as taxable income. This change does not affect group coverage plans.

 

The Presbyterian Church in America’s Retirement and Benefits, Inc. (RBI) has prepared a short summary outlining the new rules under the Affordable Care Act (ACA), providing some information about how the ACA may affect the call packages of pastors.

In brief, it is no longer possible for churches to provide tax-sheltered reimbursements to their pastors or other employees for individually purchased health insurance coverage. The churches may assist employees by increasing taxable compensation that can be used for anything (though they cannot increase with provision that the increase must be used for health insurance), but under the ACA, it will be reported as taxable income. This change does not affect group coverage plans.  These plans still may be provided as a tax-sheltered benefit.

RBI has prepared a short summary outlining the new rules under the ACA.  You may contact Dave Anderegg (678-825-1296 or 800-789-8765) with additional questions.

New Rules for Health Care in 2015

With the passage of the Affordable Care Act (ACA):

  • Churches and nonprofits are not exempt. They too must follow the ACA.
  • Employers with 50 or more full time employees must provide health insurance. Employers with fewer than 50 full time employees are not required to provide health insurance.
  • Generally, all health insurance (employer-based or individual-based) must be ACA-qualified, meaning it is both: (a) affordable (premiums do not exceed 9% of household income), and (b) provides minimum essential coverage (ten categories of ACA-required coverage like preventive health benefits).
  • Organizations can no longer reimburse employees for the purchase of health insurance. Further, employers cannot pay the premiums for any individual health insurance plans their employees may purchase. Employers may increase taxable compensation in lieu of reimbursing health insurance, but reimbursements are prohibited. Essentially, either the employer provides group medical coverage or does not provide any medical coverage (including any financial assistance). If the employer does not provide group medical coverage, then employees must find some sort of insurance on their own and this is not a tax free event.
    • The IRS notice 2013-54 originally referencing this issue has been followed up by two Frequently Asked Questions from the IRS (ACA FAQ Part XI and ACA FAQ Part XXII), as recently as November 4, 2014.
    • Notice 2013-54 supersedes Revenue Ruling 61-146 which had been in place for over 50 years relating to “Contributions by employer to accident and health plans.”
    • As a reminder, employers may increase taxable compensation in lieu of reimbursing health insurance, but reimbursements are prohibited.
    • Per Code Section 4980D (failure to meet certain group health plan requirements), the penalty is $100 per day per employee.

Employers with fewer than 50 full time employees have two options:

  • Provide group medical coverage.
  • Cancel group coverage and increase employee’s taxable salaries so these employees can find their own coverage.

If an employer cancels coverage, employees have five options:

  • Find individual coverage with an individual agent or private website like ehealthinsurance.com. These plans are also ACA-regulated, offering the same plans as the ‘Obamacare’ marketplace exchange. They also keep the same open enrollment timeframe as the ACA (which begins November 15 of each year).
  • Buy a plan on the ACA marketplace exchange (healthcare.gov), potentially receiving premium tax credits which can offset the increase in taxable income.
  • Purchase group insurance through the spouse’s employer.
  • Join a medical sharing cooperative like Christian Care Medi-share or Samaritan’s Ministries. Note: these are not guarantee issue plans, are not regulated, coverage can be denied and these are not insurance (no networks). However for those who have cash saved up and like pay as you go medical visits, this can work very well.
  • Pay the federal tax penalty and remain uninsured.

You can review the RBI website for updates.

You may also find the following websites useful:

IRS Healthcare Site

U.S. Department of Labor

Health and Human Services

Healthcare.Gov

Kaiser Family Foundation