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Extra pay instead of health insurance?

In our previous post, we explored the basics of providing wage increases vs. health benefits. The wage increase model continues to grow in popularity and success, but we know there are still many questions around the topic. The following are four FAQs about providing employees extra pay instead of health insurance. 

Quick Definition: What is a wage increase for health insurance?

A wage increase for health insurance essentially means you give your employees a raise, and they then take that added income to purchase their own healthcare. 

1. Can you customize the amount of extra pay for health insurance?

One of the best parts of using extra pay instead of health insurance is that it is completely customizable! While there are standard HR compliances you must keep in mind (and talk to an HR professional about) when it comes to employee wage, you have the power to choose how much extra pay you provide your team.

Not only are you able to customize how much extra pay you give employees, they are also able to use that extra pay to choose a plan that actually meets their unique needs. Traditional group insurance hardly ever covers the individual health requirements of your whole team. By providing a wage increase instead, employees can customize their healthcare to meet their needs.

2. Is all money for healthcare tax-free?

There are a lot of tax-free options out there for healthcare. Traditional group plans, HSA contributions, and the new Individual Coverage HRAs (ICHRA) are all tax-free options. However, giving employees extra pay for healthcare is not a tax-free option.

Tax-free healthcare isn’t the only incentive that’s worth your while, though! 

When you provide employees extra pay instead of health benefits, tax credit discounts are often made available to them. Wage increases can also be used towards a spouses’ plan, or even on a sharing ministries. By keeping the extra pay taxable, your employees can keep it flexible to meet their needs! Plus, they may even receive an income tax break.

3. Does giving extra pay fulfill the employer mandate?

The large employer mandate applies to employers with 50+ employees. Those groups are required to participate in their team’s healthcare. The simplest, but usually most expensive way, is to offer traditional group insurance. 

However, there is another ways to fulfill this mandate besides the group plan!

The other way is to simply pay the shared responsibility payment instead. There are a lot of details surrounding this topic (and you can check out more about this on this post here). The general concept is while extra pay does not fulfill the employer mandate, the net-savings can oftentimes make a significant impact on the total healthcare spend.

4. What if the extra pay isn’t used for healthcare?

Providing extra pay makes it customizable to ensure each employee has what they need for choosing a healthcare plan. Because a wage increase is also taxable, it stays flexible for all of their options (Marketplace, Spousal Plan, Sharing, etc.). It seems that providing a wage increase to employees for healthcare is a win-win!

But what if the employee doesn’t spend it on healthcare? As you may recall from our previous post, IRS Notice 2015-17 is very specific that a wage increase cannot be conditional on it being spent on healthcare.  

If this is a concern for you, it’s important to remember your employees want a healthcare plan that meets their needs! By providing them extra pay instead of health insurance, they have the power to choose just that. 

Expert Note: Something that makes Remodel Health so special is our proprietary solution for payroll-deduct. This feature ensures the employees’ individual insurance payments are made seamlessly.

Connect with us!

Insurance can feel complicated and overwhelming. We are committed to educating you and your team on healthcare. Our team of benefits consultants would love to connect with you and provide a free evaluation of your team. We look at every innovative solution and customize a benefits strategy that works best for you.

Email us at [email protected] to get started!

Important Notice:  Remodel Health does not intend to provide specific insurance, legal, or tax advice. Remodel Health always recommends consulting with your own professional representation to properly evaluate the information presented and its appropriate application to your particular situation.