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A Guide to Premium Reimbursement Arrangements

Implementation Strategies for Premium Reimbursement Arrangements

This section outlines how to set up and implement a Premium Reimbursement Arrangement.

How to Set Up a Premium Reimbursement ArrangementImplementation_strategies_premium_reimbursement

There are three simple steps to set up a Premium Reimbursement Arrangement.

Step 1: Cancel Group Health Insurance

First, cancel the group health insurance plan (if one is offered). Most plans can be canceled at any time. When a plan is canceled, all those covered will be eligible for a special enrollment period for individual health insurance.

This means employees are eligible to purchase individual health insurance outside of the annual open enrollment period (ex: November 15, 2014 to February 15, 2015). Eligible employees will also be able to access premium tax credits.

Step 2: Set Up a Premium Reimbursement Arrangement

To set up a Premium Reimbursement Arrangement, first decide how much the business will contribute to employees’ health insurance expenses. Businesses can provide the same contribution amount (“allowance”) to all employees, or offer a different allowance amount by class of employee and/or family status.

Then, work with a Reimbursement Software Provider to set up a formal plan. You’ll have two options:

Taxable Health Care Allowance - With this approach, the business provides a taxable health insurance stipend.

Tax-free Premium Reimbursement Arrangement - With this approach, the business uses a Section 105 Medical Reimbursement Plan to reimburse employees for their substantiated individual health insurance costs on a pre-tax basis. This type of plan is sometimes called a Healthcare Reimbursement Plan (HRP).

Step 3: Educate Employees

Next, educate employees about how individual health insurance and premium  reimbursement works, and how it benefits employees and their families.

Step 4: Employees Purchase Individual Health Insurance

Lastly, employees purchase individual health insurance policies with their own money and submit a reimbursement request. The business reimburses employees on payroll.

With a tax-preferred Premium Reimbursement Arrangement, the business only reimburses employees for eligible premium expenses, up to the amount of their healthcare allowance. Without annual renewal increases or minimum contribution amounts, the business is free to set and control all costs.

The Comprehensive Guide to the Small Business HRA