Can Employer Buy Individual Policy for 1 Employee?

[Prouddad]

A client of mine is the owner of a small business (corporation) in California that employs 3 people including himself. He does not provide group benefits for his employees although he may be willing to contribute a nominal amount each month towards the premium for each employee's individual policies. I don't believe that he's a candidate for a defined contribution plan because he doesn't want to pay nearly as much for his employees from company funds as he's willing to pay for his own coverage.

He wants to use his company to pay for his individual medical insurance. Is there a way for him to do this without exposing himself to discrimination charges?

 

[taterpeeler]

nope.... not in texas. violation of federal and state group circumvention laws

 

[moonlightandmargaritas]

He does not provide group benefits for his employees although he may be willing to contribute a nominal amount each month towards the premium for each employee's individual policies.

Very "big" of him - must be a nice guy.

He wants to use his company to pay for his individual medical insurance.

S corp or C corp?

 

[Josh]

Stupid question:

Couldn't he just give them a raise to offset it?

Pay for Aflac for everyone?

How nominal we talking?

 

[Ann H]

No - yes - no - NO!!!!!

No if he wants to use a Defined Contribution or Section 125 to accomplish it, due to laws against discrimination in favor of highly compensated employees or employees with more than 2% ownership of the business.

Yes, if he wants to use Employer funds to pay for his own coverage (if the insurance company will accept funds from the employer).

However, no, because his accountant will just attribute it to stockholder distributions (taxable) anyway, since it's not a group plan written in the name of the business.

NO!!!!! Because this "ethics alert flag" should tell you that this employer isn't worth doing business with. Anyone who treats his employees like this will cause you more headaches than the commission is worth.

 

[taterpeeler]

All ya are wrong... You can't end run group laws to buy Indy coverage... Period... At least in texas

 

[Josh]

All ya are wrong... You can't end run group laws to buy Indy coverage... Period... At least in texas

Surprisingly enough this is in California.

 

[moonlightandmargaritas]

However, no, because his accountant will just attribute it to stockholder distributions (taxable) anyway, since it's not a group plan written in the name of the business.

Not exactly.

If it is a C corp, health insurance premiums are 100% deductible as a business expense (regardless of who's covered or not) by the corporation.

If it's an S corp, the value could be added to distributions, but he would be able to offset it with the self-employed (even if he's NOT "self-employed") health insurance deduction on form 1040...so it's a wash.

 

[leevena]

A client of mine is the owner of a small business (corporation) in California that employs 3 people including himself. He does not provide group benefits for his employees although he may be willing to contribute a nominal amount each month towards the premium for each employee's individual policies. I don't believe that he's a candidate for a defined contribution plan because he doesn't want to pay nearly as much for his employees from company funds as he's willing to pay for his own coverage.

He wants to use his company to pay for his individual medical insurance. Is there a way for him to do this without exposing himself to discrimination charges?

The employer can pay for his own plan without paying for the others. What discrimination charges are you referring to?

If the employer is willing to pay something towards the other employees, he may. He can even contribute towards one, but not the other.

As AnnH mentions, the accountant may want to chime in on the way this is done.
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All ya are wrong... You can't end run group laws to buy Indy coverage... Period... At least in texas

I am unaware of these laws, lease provide citation/proof to this statement. Also, in an earlier post you mentioned that this strategy violates "federal group laws", please provide citation/proof of this.

 

[taterpeeler]

The employer can pay for his own plan without paying for the others. What discrimination charges are you referring to?

If the employer is willing to pay something towards the other employees, he may. He can even contribute towards one, but not the other.

As AnnH mentions, the accountant may want to chime in on the way this is done.
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I am unaware of these laws, lease provide citation/proof to this statement. Also, in an earlier post you mentioned that this strategy violates "federal group laws", please provide citation/proof of this.

I dont have time to search and disect articles and sections of law ... just take the 20 years of experience I have and run with that... i have apps to write, clients to serve and websites to manage... looking for some section of law to post is the last thing I choose to do.... either believe it or not... I dont care... but in texas this is the way it is..