A health care reimbursement plan, in a general sense, is defined as a health benefit where employees are reimbursed by their company for their medical expenses. This differs from traditional benefits chiefly because the company makes a benefit allowance available, instead of choosing and administering a health insurance policy.
Health care reimbursement plans are growing in popularity because employees can choose the health insurance they want and get reimbursed for expenses. Small businesses like reimbursement plans because they avoid the messy and time-consuming world of group health insurance while keeping their benefits budget predictable.
The term health care reimbursement plan has also been used to describe a type of Section 105 self-insured medical expense reimbursement plan (MERP) designed for premium reimbursement. Known as a Healthcare Reimbursement Plan (HRP), this type of plan is no longer commonly used or available, with benefit providers opting to offer newer, more flexible solutions to small businesses instead.
This post will describe how reimbursement plans work and what kinds of reimbursement plans are available today.
Introduction to health care reimbursement plans
Health care reimbursement plans are an employer-funded, tax-advantaged health benefit plan that allows companies to reimburse employees for their medical expenses.
A health care reimbursement plan is not health insurance. Rather, it is a way to provide allowances employees can use on their medical expenses.
How health care reimbursement plans are structured
Health care reimbursement plans are formal arrangements that require legal plan documents. These plans must comply with all applicable federal regulations and include details on:
- who is eligible,
- what can be reimbursed,
- how reimbursements are approved,
- how payments are distributed, and
- what happens in the event of a decision dispute.
For full details on how reimbursement plans are structured, click here to download our guide to the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), How to Self-Administer a QSEHRA.
Health care reimbursement plans are notional
Health care reimbursement plans are an agreement between the company and employees. In other words, the plan is a notional arrangement where no funds are expensed until reimbursements are paid. Through a reimbursement plan, the company reimburses employees directly only after the employees incur an approved health expenses.
Health care reimbursement plans available today
As of 2017, there are two primary types of reimbursement plans available to small businesses: the integrated HRA and the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).
The integrated HRA is a reimbursement plan that is paired with a group health insurance policy. For most small businesses, this isn’t available because group health insurance already isn’t an option.
The QSEHRA is a new small business HRA that was signed into law in December 2016. It allows companies to reimburse employees and their families tax-free for health insurance premiums and other out-of-pocket medical expenses. It’s available to small businesses with fewer than 50 full-time employees.
To learn more about how this small business HRA works, click here to download The Comprehensive Guide to the Small Business HRA.
Editor's Note: This post was originally published in February 2014.
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