When all Baby Boomers turn 65 by 2030, Pew Research Center estimates 18 percent of the nation’s population will 65 or over - compared to just 13 percent today. Combined with an increasing retirement age, employers are inevitably faced with an increasingly aging workforce. This has its benefits. Loyal employees with decades of experience add value to the business. And yet, it also has its challenges - including how to tackle health benefits for an aging workforce.
For example, many business owners ask about how they can help with employees’ Medicare premiums, just as the help with other employees’ healthcare. One strategy is to set up a tax-free health reimbursement plan (HRP). This article outlines how to set up a formal, tax-advantaged HRP to reimburse employees for Medicare health insurance premiums.
Understanding Health Reimbursement Plans (HRPs)
A Health Reimbursement Plan (HRP) is a tax-free reimbursement plan which may be used for qualified medical and insurance expenses, as allowed under Section 105 of the Internal Revenue Code (IRC). HRPs are also called “Section 105 Medical Reimbursement Plans.”
An HRP is designed to reimburse eligible employees (and dependents) for their individually-purchased health insurance premiums, including Medicare premiums. Designed correctly, an HRP complies with all existing federal regulations - including the new ACA “Market Reforms.”
HRPs Can Reimburse Medicare Insurance Premiums
Unlike other types of health savings and reimbursement accounts, a benefit of HRPs is they can be used to reimburse employees for a wide range of health insurance premiums, including Medicare Part A, Medicare Part B, and Medicare HMO.
Here is an example about how a company could use an HRP to provide a formal benefit to employees covered under Medicare.
A 25-person retail company in Tucson, Arizona offers a group health insurance policy to its full-time employees. As a well-established company, they have an aging workforce enrolled in Medicare.
To support and retain their loyal employees, the company aims to contribute to employees’ Medicare supplemental premiums, just as they contribute to other employees’ health insurance premiums.
To achieve this goal, the company sets up a Section 105 Health Reimbursement Plan for employees not enrolled in the group health insurance policy. This allows the company to provide a healthcare allowance to Medicare-enrolled employees.
Using the HRP, the company is able to help employees with the cost of their Medicare insurance premiums, and other eligible premiums.
Using a Section 105 Healthcare Reimbursement Plan (HRP), employers may offer a tax-free contribution to their aging employee workforce. This is a powerful tool to help employees with the cost of healthcare who are not on the company’s traditional group health insurance policy.
What questions do you have about premium reimbursement for employees enrolled in Medicare? Let us know in the comments below.