How does a medical reimbursement plan work?
If you’re wondering, “How does a medical reimbursement plan work?” you should know that there are two types of health reimbursement arrangements (HRAs) that make it possible to reimburse employees for health insurance premiums and qualified medical expenses tax-free. Instead of funding a group health plan, employers can set a monthly budget for benefits and reimburse employees tax-free for plans they choose on the individual market. Let’s explore the options to a medical reimbursement plan.
Using HRAs for medical reimbursement
HRAs allow an employer to reimburse for medical expenses and/or insurance premiums on a tax-free basis. Under these arrangements, employees purchase their own health insurance on the open market and then submit claims to their employer to get reimbursed for the cost of their premium and if allowed, all qualified medical expenses.
The qualified small employer HRA (QSEHRA) requires your business to be small, with less than 50 Full Time Equivalent employees, and you can’t offer a group plan at the same time. If you meet those qualifications, you can use an HRA administration tool (like ours!) to create your QSEHRA, decide how much you’ll reimburse each month (up to the contribution limits), let your employees choose the plan that works best for them, and reimburse them when they submit receipts!
QSEHRA basics:
Employees must be covered by a Minimum Essential Coverage (MEC) health insurance plan in order to receive QSEHRA reimbursements. However, there are a few types of plans to be aware of that cannot be reimbursed through a QSEHRA, even with a Minimum Essential Coverage Plan. This post goes into more detail about which plans work and which plans don’t work with QSEHRA.
The individual coverage HRA (ICHRA) is almost like a “super-charged” version of the QSEHRA. Instead of being capped at 50 employees, employers of any size can set up an ICHRA for their teams. There are also no contribution limits with this HRA. Another key differentiator from HRAs in the past? ICHRA allows business owners to customize their reimbursements across different classes of employees. While everyone must be treated fairly within a certain class, reimbursement rates can vary between full time, part time, seasonal, remote, etc.
ICHRA basics:
With ICHRA, employers can offer as much or as little as they’d like as long as it’s offered fairly to each class.
Give all employees the same amount: For example, you could give all employees $200/mo.
Vary reimbursements by family size: Since individual market plans cost more for families, employers can offer more for larger families. For example, an employer could offer $200 for single employees, $300 for married employees, and $600 for employees with families. Or they could offer $100 for each additional dependent.
Vary reimbursements by employee age: Similarly, since individual plans typically cost more for older employees, employers can elect to offer higher reimbursement amounts to older employees.
Vary by both family size and age: Combo of the above two options.
Medical expense reimbursement with ICHRA + QSEHRA
Most employers choose to allow medical expenses to be reimbursed too. Eligible expenses include doctor visits, copays, dental cleanings, prescriptions, eye glasses, diabetes supplies, etc.
We make it easy for employees to just snap a picture of their receipts for reimbursement. Employers have a lot of flexibility over what is reimbursed. Understanding the impact of these options can go a long way towards helping the employer achieve their objectives and keep their budget in check.
Check out this comprehensive list of the medical expenses that are reimbursable with an HRA.
Take Command has information about medical reimbursement plans!
If you still have questions about medical reimbursement plans and reimbursing health insurance premiums, we have a slew of resources available for you, and a group of experts standing by. Check out our comprehensive guides to ICHRA and QSEHRA. This guide walks you through what can be reimbursed with QSEHRA. Chances are, if you have a question about HRAs, we’ve got an answer for you!
