Can a Corporation Pay Health Insurance for Employees?

Millions of workers rely on workplace sponsored group health insurance for their health care coverage. Group coverage typically offers the advantage of a simplified or guaranteed underwriting process: Insurers either agree or are required by law to cover all qualified employees in a group, along with their dependents. Anyone can get covered, regardless of pre-existing conditions. However, premiums can be expensive in group plans, and very young, healthy workers can often find more affordable coverage as individuals.

Insurance as a Group Benefit

• Some states require employers that employ more than a set number of people to provide group coverage for their employees. Others make employee health coverage strictly voluntary. In either case, employers typically contract with one or more health insurance providers, and must typically pay for at least half of the coverage, while the employee contributes the remainder. The employee does not pay taxes on money the employer spends on his behalf, but the employer can take a tax deduction on any premiums it pays to provide health coverage for its employees, to include owner-employees.

The Individual Market

• Employees can also purchase health insurance on their own, as individuals. Overall premiums can be lower with these kinds of plans, though there is no employer to pick up part of premium costs. However, it can be difficult to obtain health insurance as an individual, since this business is medically underwritten. Insurance companies will charge extra, or decline outright those applicants who they feel are bad risks to the company.

Voluntary Benefits

• The voluntary benefits market is a hybrid between the employer-based model and the individual market. In this arrangement, the worker obtains an individual policy, and the employer pays the premium for the employee directly to the insurance company. Typically, the employer deducts the cost of the premiums from the workers paycheck, and the insurance company bills the employer.

Tax Treatment of Premiums

• If the employer sponsors a plan and pays the premiums, the employer can deduct the cost of premiums as an ordinary business expense. Individuals, however, cannot generally deduct the cost of medical insurance premiums.