Employers offering small business group health insurance benefits have flexibility treating employees differently as long as the contribution policy complies with the insurance company’s employer contribution requirements and basic non-discrimination laws (HIPAA and Section 125).
Employers can contribute a flat dollar amount, or they can require employees to pay a set percentage or a set dollar amount towards their premiums. Here’s more about how this works, and this is another good resource. Any approach that a small employer takes is going to result in either the employees paying differing amounts or the employer paying differing amounts, since small group premiums vary based on age and the number of covered family members, and those will obviously differ from one employee to another.
Employers can use a combination of those approaches but must be consistent within each classification of employees. Other than differences that are due to the coverage options that an employee may or may not have selected, HIPAA only allows for treating employees differently based on bonafide employee classifications, which are detailed here.
For example, an employer can pay a flat dollar amount for hourly workers and a percentage of premiums for salaried workers. But they cannot, for example, pay a flat dollar amount towards most employees’ premiums and then pay a percentage of the premium for an employee who is simply in need of extra help but not a differently classified employee.
This sounds obvious, but it can be difficult for employers to balance the budget and offer a policy that seems fair to all employees. For example, if some employees would qualify for a subsidy/tax credit through the exchange (assuming the employer didn’t offer coverage), how would their after-subsidy premium and out-of-pocket costs in the exchange compare to their payroll-deducted premium and benefits under the employer-sponsored plan? In most cases, the option to enroll in an employer-sponsored plan will make employees and their families ineligible for subsidies/tax credits in the exchange. So if the employer contribution — for an employee’s entire family — isn’t on par with the subsidy the employee would otherwise get through the exchange, the employer could consider providing a larger contribution amount/percentage for employees in the affected employee classification group.
Section 125 prevents employers from discriminating in favor of highly-compensated employees. But some employers are taking the opposite approach and charging highly-compensated employees a larger percentage of their pay for their health benefits — which doesn’t run afoul of Section 125 rules.
