The way group health insurance works is that Employer paid premiums for employee medical insurance are deductible by the company whether the coverage is under a group policy or an individual policy. The employee need not report the amount paid by the employer as current income. When an employee pays the premium and is then reimbursed by the employer, the amount received is not included in the employee's gross income.
Benefits paid under the insurance plan, which reimburse the employee for payments made for hospital, surgical or other medical expenses, are not included in the employee's gross income. Group medical plans are an attractive fringe benefit because personally paid medical insurance premiums and medical expenses are only deductible in excess of 7.5% of the taxpayer's adjusted gross income.
The Health Insurance Portability and Accountability Act of 1996, signed into law on August 21, 1996 expanded the availability of coverage under group health plans. Effective with plan years beginning after June 30, 1997, the Act:
- Limits exclusions for pre-existing conditions
- Prohibits discrimination in eligibility or premiums solely on the basis of an individual's health situation
- Guarantees renewability for those employers with group health plans and
- Provides penalties for employers who do no comply with the law.
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for retirement and health benefit plans in private industry. ERISA does not require any employer to establish a plan. It only requires that those who establish plans must meet certain minimum standards.
ERISA covers retirement, health and other welfare benefit plans (e.g., life, disability and apprenticeship plans). Among other things, ERISA provides that those individuals who manage plans (and other fiduciaries) must meet certain standards of conduct. The law also contains detailed provisions for reporting to the government and disclosure to participants. There also are provisions aimed at assuring that plan funds are protected and that participants who qualify receive their benefits.
ERISA has also been expanded to include new health laws. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) amended ERISA to provide for the continuation of health care coverage for employees and their beneficiaries (for a limited period of time) if certain events would otherwise result in a reduction in benefits. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) amended ERISA to make health care coverage more portable and secure for employees.
EBSA's compliance assistance information will assist employers and employee benefit plan officials in understanding and complying with the requirements of ERISA as it applies to the administration of employee retirement, health and other welfare benefit plans. For more information, please visit http://www.dol.gov/ebsa/compliance_assistance.html.
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