An Important Health Care Change and How it May Affect Your Church
What You Can Do In Response
For many years, churches have been able to directly pay for, or reimburse ministers and other church employees for, the premiums of health insurance policies purchased by the employee without the employee being taxed. As a result of regulations governing the Affordable Care Act (ACA), this will – in most cases – no longer be allowed effective July 1, 2015.
If you allow this practice (called Premium Reimbursement Plans) to continue after June 30, your church could be subject to a penalty under the ACA of $100.00 per day per participating employee. That could add up to an annual maximum penalty of $36,500.00 a year per participating employee!
That's the bad news. But here are some clarifications and suggestions on ways to deal with this new provision of the law so that you can avoid the penalties and still maintain the health care coverage that you want to provide for your employees.
First, you don't need to do anything if:
- You currently have a church/employer-purchased group health plan in place. The new regulations only apply to individual policies purchased by the employee that are reimbursed by the church or paid directly by the church (Premium Reimbursement Plans).
- You only have one employee (a pastor for example) that you are making or reimbursing the payment for an individual employee policy. You can still reimburse or make the employee's premium in this case, tax-free with no penalty.
Second, if you are currently out of compliance with the new regulation, you can get in compliance and avoid penalties by:
- Instituting a church/employer-purchased health plan. Healthcare.gov has plans you can review and any insurance broker is a potential source of plans as well. Also, as an option to consider, Guidestone has just made available a church/employer-purchased health plan for a group as small as two people.
- Increasing the pastor or employee's taxable compensation to a level that will cover the cost of their health insurance (and tax exposure if you feel it appropriate). In order for this approach to be in compliance, the pay increase needs to not be conditioned on purchasing health insurance.
Now is the time to take a look at your current practices and determine what, if any, corrective action you need to take to get into compliance with the ACA by July 1 and avoid those potential compliance penalties. Please know that we are here to help. If you have any questions or if we can provide any additional clarification, please contact either: