Can I offer my employees a health insurance stipend?

For many small businesses, setting up employee health insurance and other plans may seem too complicated. Many small businesses share a common question, “Can I offer my employees a stipend in lieu of a health insurance plan?”

Employers certainly can offer stipends to help pay for their employees’ individual health insurance plans. There are two ways to do this, by offering a stipend that simply increases gross wages for employees or by setting up health reimbursement arrangements or HRAs. Employers need to be aware of the tax implications compared to offering employer-sponsored health insurance instead. A stipend is treated as taxable income and the employee cannot be required to use the stipend for health insurance. Employers cannot require employees to provide proof that they enrolled in individual health insurance if offered a stipend.

Compared to a taxable stipend, HRAs are tax-free allowances for employees to get their own health insurance. There are a few different types of HRAs or health reimbursement accounts with different use cases.

QSEHRA – Qualified Small Employer HRADesigned for businesses with fewer than 50 employeesNot subject to ERISA rulesICHRA – Individual Coverage HRADesigned for businesses of all sizesCannot be paired with group health insuranceNot subject to ERISA rulesGCHRA – Group Coverage HRADesigned to be paired with an employer-sponsored health insurance plan

While stipends can be easy to administer as a simple boost to gross income with employees having a higher taxable income, both HRAs and group health insurance have to be administered appropriately and compliantly. If you are interested in offering either an HRA or group health insurance to your employees, please do not hesitate to contact us to review your options. Our mission at Solid Health Insurance Services is to find your business an affordable benefits package that best fits the medical needs of your employees and the budget of your company. Please contact us at 310-909-6135 or at info@solidhealthinsurance.com.