This section outlines how to implement a Health Reimbursement Plan.
There are six steps to consider as you set up and implement a Health Reimbursement Plan (HRP):
Step 1 - The employer decides who will administer the HRP (ex: Administration Software Provider, a third-party administrator, or self-administer).
Step 2 - The employer sets employee eligibility requirements and determines the monthly allowance amounts.
Step 3 - The employer enrolls eligible employees into the plan and distributes all required plan documents.
Step 4 - Employees purchase health insurance with their own money, and submit documentation for reimbursement.
Step 5 - A HIPAA-compliant claims processor reviews the reimbursement request and approves or rejects the request. (Tip: Unlike with an HSA, the IRS requires employees to submit written documentation for all eligible medical expenses before they are reimbursed from an HRP. However, because of HIPAA and other privacy concerns, virtually all companies use a third-party to handle verification of medical expenses and/or reimbursement to employees.)
Step 6 - If the request is approved, the employer reimburses the employee for the approved reimbursement, up to the balance of each employee's HRP.
To administer a Health Reimbursement Plan (HRP), you need to:
Have legal, written HRP Plan Documents, and
Have safeguards in place to stay compliant with the IRS, ERISA, HIPAA, and the ACA.
Businesses have three main options for compliant HRP administration: a traditional third party administrator ("TPA"), an Administration Software provider, or self-administration. Because of compliance reasons, and for ease of use and time savings, most businesses use a third party to administer the plan.
A Traditional TPA will help a business: set up the HRP, create and distribute plan documents, manage all funds, review claims for reimbursement, keep premium documentation on file, and issue reimbursements to employees. Traditional TPAs require pre-funding of the HRP allowances.
An HRP Administration Software helps a business: set up the HRP, create and distribute plans documents electronically, provide a "Quick Books-like" tracking of HRP funds, review claims for reimbursement, keep medical receipts on file electronically, and notify the employer (through the software) when to reimburse employees via payroll. HRP Software does not require pre-funding of allowances, and is not a fiduciary.
Self-Administration: Technically, a business can self-administer its own HRP, but failure to comply with the minimum federal administration requirements is common without utilizing proper Software or a TPA. Businesses that self-administer are frequently out of compliance with IRS, ERISA, HIPAA, COBRA, and ACA regulations, and businesses can face costly fines for being out of compliance. And, if a business puts into place all of the safeguards needed for compliance, the administrative cost likely outweighs the benefits of the HRP.
In the next section, we’ll cover more about HRP Administration Software.