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What is a group health insurance plan?

Provided by Advisys, Inc.

Employer provided group insurance health plans offer lower cost insurance for employees since the employer pays a portion of the premium.

A nurse uses a stethescope on a patient

Employer-paid premiums for employee medical insurance are deductible by the company whether the coverage is under a group policy or individual policies. See Reg. Sec. 1.162-10(a).

The employee need not report the amount paid by the employer as current income. See IRC Sec. 106. 

When an employee pays the premium and is then reimbursed by the employer, the amount received is not included in the employee’s gross income. See Reg. Sec. 1.106-1.

Benefits paid under the insurance plan, which reimburse the employee for payments made for hospital, surgical or other medical expenses, are not included in the employee’s gross income.

Group medical plans are an attractive fringe benefit because personally paid medical insurance premiums and qualified medical expenses are only deductible when they exceed 7.5% of the taxpayer’s adjusted gross income. See IRC Sec. 213.

Self-insured medical reimbursement plans which favor employees who are officers, shareholders or highly-paid employees may not qualify for the above tax benefits.

The Code sets certain eligibility requirements for self-insured plans, similar to those applied in qualified retirement plans, which are designed to discourage discrimination. See IRC Sec. 105(h).

The Health Insurance Portability and Accountability Act of 1996, signed into law on August 21, 1996, expanded the availability of coverage under group health plans. Effective with plan years beginning after June 30, 1997, the Act:

  • Limits exclusions for pre-existing conditions.
  • Prohibits discrimination in eligibility or premiums solely on the basis of an individual’s health situation.
  • Guarantees renewability for those employers with group health plans.
  • Provides penalties for employers who do not comply with the law.

These materials were reproduced with the permission of Advisys, Inc. No State Farm® entity prepared these materials nor does State Farm represent or warranty the opinions or statements expressed therein. These materials are being provided for information purposes only.

Neither State Farm nor its agents provide tax or legal advice.

Please consult your tax, legal, or investment advisor regarding your specific circumstances.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.



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