Employer paid premiums for employee
medical insurance are deductible by the company whether the
coverage is under a group policy or individual policies. See Reg.
Sec. 1.16210(a).
The employee need not report the amount paid by the employer as
current income. See IRC Sec. 106.
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. See IRC Secs. 106 and Rev. Rul. 61‑146, 1961‑2 CB
25.
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. See IRC Sec. 213.
Under current law, this deduction may be further reduced or
eliminated through the phaseout of deductions for persons with
incomes in excess of certain amounts.
Self‑insured medical reimbursement plans which favor employees who
are officers, shareholders or highly paid employees may not
qualify for the above tax benefits.
The Code sets certain eligibility requirements for self‑insured
plans, similar to those applied in qualified retirement plans,
which are designed to discourage discrimination. See IRC Sec.
105(h).
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:
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Limits exclusions for pre‑existing conditions; |
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Prohibits discrimination in eligibility or premiums solely on
the basis of an individual's health situation; |
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Guarantees renewability for those employers sharing in
multi‑employer plans; and |
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Provides penalties for employers who do not comply with the
law. |
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