Every day we speak with employers and health insurance brokers asking if there's a right way to reimburse employees for individual health insurance. This article covers ten best practices for premium reimbursement.
10 Best Practices for Premium Reimbursement
1) Use a Formal Reimbursement Plan
The first best practice is to set up a formal reimbursement plan. Employers basically have two options: a taxable healthcare allowance or a tax-free Healthcare Reimbursement Plan. (Note: This article is focused on a tax-free Healthcare Reimbursement Plan, as most employers choose this option.)
Why? A formal plan helps the business recruit and retain employees and comply with various rules. For example, employers need to follow IRS, ERISA, HIPAA, ACA, and other applicable rules when reimbursing employees tax-free for individual health insurance. Failure to comply can mean costly fees.
2) Use Healthcare Reimbursement Software
The second best practice is to use a Healthcare Reimbursement Software.
Why? Employers use a software platform to offer a compliant plan and administer the plan in five minutes per month online. Employees use the software platform to easily view their benefits and to submit reimbursement requests online.
3) Select a Health Insurance Professional
Work with a licensed health insurance broker or agent to help employees select and purchase personal health insurance policies. Select an insurance professional familiar with individual health insurance policies, reimbursement plans, and health care reform.
Why? Buying health insurance is a new experience for many employees. A broker or agent will help employees understand options, compare plans, and purchase a policy that best fits their needs and budget.
4) Do Not Get Involved with the Selection or Purchase of Employees' Individual Health Insurance Policies
Why? The federal government has guidelines for employers who want to contribute to an employee's individual health insurance premiums. To avoid endorsement of individual health insurance plans:
Employers must not be involved in employees' decision to purchase individual health insurance, or their decision on which insurer or plan to use.
Employers may not directly pay premiums on individual health insurance policies.
Employers must not become involved in any claim dispute between an employee and an insurance carrier; all inquiries must be directed to the insurer.
Employers must not pressure employees to use their allowance to pay for individual insurance coverage.
In addition to reimbursing for major medical health insurance premiums, employers should also allow the use of the premium reimbursement plan for non-major medical health insurance premiums (e.g. dental) and basic preventive health service as required by law.
Employers must limit their role to simply verifying that a qualified medical expense (such as an individual health insurance premium) was incurred, and then reimbursing such amount from the premium reimbursement plan.
Again, using a third-party Health Reimbursement Software provider (who also reviews all claims for reimbursement), creates a safegaurd for employers. And, utilizing a health insurance professional provides employees additional support.
5) Don't Let Employees Contribute
Assuming the business is using a tax-free Healthcare Reimbursement Plan, do not let employees contribution to the plan.
Why? Healthcare Reimbursement Plans are, by definition, 100% employer-funded. Allowing employees to contribute invalidates the tax benefits.
6) Set Affordable Allowance Amounts
How much the business contributes is 100% up to them. As such, set allowance amounts at a rate the business can sustain.
Why? As a best practice, it is always better for employee relations to increase the benefit level rather than decrease the benefit level.
7) Educate Employees
Take time to educate employees about the reimbursement program and about the advantages of individual health insurance.
Why? Like any health benefits program, educating employees helps everyone get the most out of the benefit program.
8) Don't Pre-Fund a Third-Party Account - There's No Need To
Why? From a cash-flow perspective, a big benefit with premium reimbursement is that it is a notional arrangement, meaning you are not required to pre-fund third party bank accounts.
9) Don't Ignore ACA and Federal Regulations
When reimbursing employees for individual health insurance it is important to comply with all applicable regulations.
Why? A Healthcare Reimbursement Plan is a self-insured Section 105 medical reimbursement plan. As such, it must comply with ACA, IRS, HIPAA, and ERISA rules; including the new ACA "Market Reforms". As mentioned previously, failure to comply with these rules and regulations can result in costly fines. Read more about the importance of compliance with ACA rules.
10) Do Your Research
When selecting a software provider, do you research.
Why? Third-party providers vary widely in service, platform, features, and cost.
Questions? Leave a comment below.