A pastor recently contacted me and asked:
Is there really no way for a church to reimburse a pastor for his health insurance premiums that he pays through one of the Obamacare marketplaces?
Well, you've asked a great question . . . a complicated one . . . but a great one. So, I'll try to simplify the answer as best as I can.
When the ACA was originally passed, all employers with 50 or more full-time equivalent (FTE) employees were required to provided health insurance for their workers. Employers with less than 50 FTE were not required to provide insurance. Subsequently, many small employers dropped health insurance coverage. However, the ACA also closed up a loophole that might have allowed these small employers to offer a reimbursement for their employees monthly premiums that they purchased on their own. No employer, regardless of size, could either pay directly or reimburse employees for health insurance that they purchased on their own. This has been the law up to Jan 1, 2017.
However, at the end of 2016, Congress passed the 21st Century Cures Act which does allow small employers (those with less than 50 FTE) to offer a QSEHRA - Qualified Small Employer Health Reimbursement Arrangement - that does allow them to reimburse employees for individually purchased health insurance premiums . . . as long as they meet all of the requirements and follow the rules/guidance appropriately. Technically, the law went into affect on January 1, 2017, but the guidance needed to operate such a plan was just released at the end of October.
Unfortunately, this will probably not help most small churches or their pastors.
Here's how it works. The only way the church can legally reimburse a pastor for his health insurance is by establishing a QSEHRA (my assumption is that reimbursements outside a QSEHRA are still prohibited). However, if they establish a QSEHRA, it must be offered to all qualified employees and must be solely funded by the church.
In addition, and this is the REALLY BAD PART, the value of any reimbursements a pastor receives from the QSEHRA must be reported to the IRS, and the value of those reimbursements will reduce (by an equal amount) any subsidy he receives from the marketplace.
To make that clear, let's say that, based on Pastor Bob's current income and family size, his health insurance (purchased through the marketplace) cost $2000/month, but his subsidy was $1800/month . . . leaving him with $200 to pay out-of-pocket for his insurance on a monthly basis.
If, next year, his church established a QSEHRA that reimbursed him $500/month for his premiums, and if everything else stayed the same, Pastor Bob's health insurance would cost $2000/month, his subsidy would be reduced to $1300/month, and his reimbursement from the QSEHRA would be $500/month . . . leaving him with $200 to pay out-of-pocket for his insurance on a monthly basis.
The only thing the church's reimbursement does is reduce the amount the government will pay in subsidy. It will not reduce the pastor's out-of-pocket expense. Again, apart from a QSEHRA, any reimbursements are, to my knowledge, prohibited.
Stacy Potts is a pastor, author, and consultant specializing in pastoral compensation and personal finance issues. He is the author of multiple personal finance books for pastors including How to Not Be a Broke Pastor and The Pastor's Guide to Wise Investing. He lives in Virginia Beach, VA, with his wife, Jamie, and their two children, Nathaniel and Hannah. Visit his website at www.brokepastor.com.