Can an Employer Pay for Individual Health Insurance?

The passage of Obamacare, or the Affordable Care Act (ACA), spelled considerable change for the entire healthcare industry. Many individuals were able to gain health insurance for the first time despite obstacles like low income or preexisting conditions that had prevented them from obtaining coverage in the past. Of course, the law also mandated that all Americans obtain health insurance coverage or risk facing penalties for failing to do so (except in cases of exemption). The ACA also changed the requirements for what health insurance benefits businesses must provide to employees. While small businesses with fewer than 50 employees are not required to provide group health insurance for employees, those of 50 or more employees are required by law to provide health insurance options. As it turns out, paying or reimbursing for the costs of individual health insurance cannot meet this obligation.

Obamacare is fairly explicit about mandatory activities to be carried out by health insurance providers, individuals, and businesses. For businesses of a certain size, this means providing group insurance plans that meet mandatory minimum coverage requirements. Although it was ruled in the 2014 Supreme Court case Burwell v Hobby Lobby that businesses of a certain nature (say, religious) need not provide policies that cover contraception (this coverage is now available through a third party for free in such instances), there are very few legal reasons why employers would not have to select appropriate group health insurance plans to meet their legal obligations on this front.

Unfortunately, allowing employees to purchase their own individual policies and then paying for premiums or reimbursing employees in some way does not qualify to meet minimum standards under Obamacare. Under the law, after-tax payments for health insurance or cash compensation don’t meet the requirement to “offer coverage”. In addition, employers that do this could face serious penalties, in the way of an excise tax totaling $100 per day or $36,500 per year for each employee not offered coverage under a group health insurance plan.

This is not to say that employees are required to take health insurance coverage offered through employer-sponsored plans. They simply can’t receive any reimbursement or compensation from employers should they choose to purchase individual policies. Of course, it should also be noted that this does not apply to companies of under 50 employees, who can legally offer a healthcare reimbursement plan if they so choose, as opposed to providing a group health insurance plan. Legally, they are not required to offer either. Doing so would be at their discretion.

Obamacare was designed to ensure low-cost healthcare options to low-income individuals and adults, and the mandate for employers (with 50+ employees) to offer group health insurance plans is intended to meet this goal. The good news for small businesses is that they may be eligible for assistance when it comes to paying for these group health insurance plans, which can be purchased through the SHOP marketplace which offers the best pricing options. Some businesses may even be eligible for tax credits or other considerations after the fact. However, the law is clear when it comes to employers paying for individual health insurance – unless the company has fewer than 50 employees, it’s a hard no.

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