Health Insurance Options for Domestic Employees

At MoniCare, we understand the importance of ensuring that your household staff—nannies, housekeepers, personal assistants, and other domestic employees—have access to health insurance. Offering health insurance benefits not only promotes the well-being of your employees, but also fosters loyalty and satisfaction. Below are the primary options available to employers for providing health insurance to domestic employees.

1. Provide a Health Insurance Stipend

A health insurance stipend is a fixed amount you provide to your employee monthly to help cover the cost of their individual health insurance plan. This option gives employees the flexibility to choose a plan that best suits their needs or to contribute to a healthcare plan, if your employee is a dependent on a spouse’s or parent’s insurance plan.

• How It Works: You agree on a stipend amount, which is typically added to their paycheck.
• Tax Implications: Stipends are considered taxable income. You may want to consult with a tax professional or refer to IRS guidelines for more information.
• Advantages:
• Simple to administer.
• Employees can choose their own insurance plan.
• Good option for an employee who is covered on a spouse’s or parent’s plan.

2. Contribute directly to the employee’s insurance policy (one employee only!)

If you only have one household employee, you can contribute directly to your domestic employee’s health insurance policy premiums. With this option, the contributions are considered non-taxable compensation.

• How It Works: Your employee chooses their own insurance option, either privately or through the Health Insurance Marketplace (https://www.healthcare.gov/). Then you as the employer contribute monthly directly to the insurance company.
• Tax Implications: The amount you contribute is not subject to taxes, which will save anywhere from 10% to 20% for both the employer and employee.
• Advantages:
• Simple to administer.
• Employees can choose their own insurance plan.
• Is a nontaxable contribution.

3. Offer Employer-Sponsored Health Insurance

If you want to provide more comprehensive benefits, you can purchase a group health insurance policy for your domestic employee(s).

• How It Works: You work directly with an insurance provider to set up a plan. Typically, you will cover part or all of the monthly premiums.
• Tax Benefits: Employer contributions toward health insurance premiums are usually tax-deductible for you and tax-free for your employee. More details can be found on the IRS’s Employer Health Plan Guidelines.
• Advantages:
• Offers significant value to employees.
• May include additional benefits like dental, vision, and wellness programs.
• Considerations: This option may require more administrative effort and is generally better suited for employers with multiple domestic staff members.

4. Reimburse Health Insurance Costs

You can reimburse your employee for the cost of their individual health insurance plan.

• How It Works: The employee provides proof of their insurance premium payments, and you reimburse them up to a pre-agreed amount.
• Tax Implications: Reimbursements are generally taxable unless they are provided through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA). Learn more about QSEHRA below and at the U.S. Department of Health & Human Services.
• Advantages:
• Simple and straightforward.
• Flexible for both parties.

5. Reimburse Health Insurance Costs through an Individual Coverage Health Reimbursement Arrangement (ICHRA)

An ICHRA allows employers to reimburse employees for individual health insurance premiums and eligible medical expenses on a tax-advantaged basis.

·       How It Works: The employer determines a monthly allowance for each eligible employee. Different allowance amounts can be set based on employee classes, such as full-time, part-time, or seasonal employees. Employees purchase an individual health insurance plan that complies with ICHRA requirements. Plans can be obtained through the ACA marketplace or private insurance providers. Then, employees submit proof of health insurance coverage and eligible expenses to the employer or a third-party administrator (TPA). The employer reimburses employees for qualified expenses up to the pre-set allowance.

• Tax Implications: Reimbursements are tax-free for employees and tax-deductible for employers if used for eligible expenses.
• Advantages:

o   Employee chooses their own plan.

o   Employer determines a fixed reimbursement amount.

o   Portable benefits: employees retain their insurance coverage even if they leave their job since the insurance plan is independent of the employer.

o   Available to employers of any size.

o   Can be offered alongside group health insurance for specific employee classes.

• Considerations:
• This option may require more administrative effort.
• Employees must have a qualified individual health insurance plan to participate.

6. Set up a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a tax-advantaged health benefit option available to small employers (those with fewer than 50 full-time employees) that allows them to reimburse employees for individual health insurance premiums and other eligible medical expenses.

·       How It Works: Employers determine a monthly reimbursement limit for employees. The annual reimbursement cap is adjusted each year by the IRS. Employees purchase individual health insurance plans that meet minimum essential coverage (MEC) requirements or use the QSEHRA to cover eligible medical expenses. Employees submit documentation of insurance premiums or qualified medical expenses to the employer or a third-party administrator. Employers reimburse employees up to the set monthly allowance, tax-free.

• Tax Implications:

1.       For Employers

·       Contributions to a QSEHRA are tax-deductible.

·       Reimbursements are not subject to payroll taxes.

2.       For Employees

·       Reimbursements are not considered taxable income if used for eligible expenses and employees maintain MEC-compliant insurance.

·       Employees can still access ACA premium tax credits, but the QSEHRA amount will reduce the value of the credit.

• Advantages:
• Employee chooses their own plan.
• Affordable and predictable costs for employers.

o   Portable benefits: employees retain their insurance coverage even if they leave their job since the insurance plan is independent of the employer.

• Considerations:
• This option may require more administrative effort.
• Only available to small employers with fewer than 50 full-time employees.
• Cannot be offered alongside a group health insurance plan.
• Employees must have Minimum Essential Coverage (MEC) to receive tax-free reimbursements. Without MEC, reimbursements will be treated as taxable income
• Employees receiving QSEHRA reimbursements may see a reduction in their ACA marketplace premium tax credits. It’s important for employees to factor this into their decision-making.
• Employers must provide employees with an annual written notice detailing the QSEHRA, including the reimbursement amount and its potential impact on tax credits.

Additional Considerations

• Written Agreement: Ensure that any health insurance arrangement is documented in the employment contract to avoid misunderstandings.
• Regular Reviews: Health insurance needs may change over time. Regularly review your employee’s needs and the available options.
• Consult Professionals: Engage a tax advisor or employment attorney to understand your obligations and benefits fully. At MoniCare, we recommend GTM Payroll and HR (www.GTM.com), 1-800-929-9213, householdpayroll@gtm.com

Providing health insurance options is a meaningful way to support your domestic employees. If you have further questions or need additional guidance, MoniCare is here to help. Contact us today to learn more!