For many small businesses and organizations, offering traditional group health insurance is a challenge. In fact, research from Harvard Business School found that only about 60% of small businesses offered health insurance in 2020, and nearly one-third of small employers weren’t sure they could afford to continue paying group health insurance premiums.
The good news is, traditional group health insurance isn’t the only option for small employers looking to offer health benefits. Many small employers are looking to health reimbursement plans, including health reimbursement arrangements (HRAs) to help their employees with their healthcare needs.
Through a reimbursement model, employers reimburse their employees for their individual health insurance and qualifying medical expenses, empowering them to choose a plan that fits their unique medical needs.
If you’re considering a health reimbursement plan, you’ll need to make sure your plan is in compliance with the Affordable Care Act’s regulations. We’ll go through the essential questions you’ll need to ask yourself to decide if you’re reimbursing your employees correctly.
Do I have a formal reimbursement plan in place?
The first question to consider is, “Do you have a formal reimbursement plan in place?” A formal reimbursement plan is a type of group health plan. When you have a formal reimbursement plan, your organization has official plan documents outlining how the reimbursement plan works.
In many cases, reimbursements are tax-deductible to the organization and received tax-free by employees.
Common types of formal reimbursement plans include:
- Health reimbursement arrangements (HRAs)
- Employer payment plans (EPPs)
Does my plan comply with regulations?
Next, you’ll need to figure out if your plan complies with all the necessary regulations. As of January 1, 2014, the Affordable Care Act created rules that impact all group health plans, including reimbursement plans.
To comply with the market reforms (PHS Act 2711 and PHS Act 2713), reimbursement plans must:
- Not place an annual or lifetime limit on essential health benefits
- Fully cover basic preventive care
- Follow applicable federal health plan rules in ERISA, HIPAA, and COBRA
Types of reimbursement plans that generally comply include:
- Qualified small employer HRAs (QSEHRAs)
- Individual coverage HRAs (ICHRAs)
- Group coverage HRAs (GCHRAs)
Types of reimbursement plans that generally do not comply include:
- Employer payment plans (EPPs)
- Christian healthcare sharing ministries
Am I reimbursing employees directly or paying for their premiums directly?
If you don’t have a formal reimbursement plan in place, then you’ll next need to consider if you’re reimbursing employees directly and/or paying for their premiums directly.
While formal reimbursement plans allow you to compliantly reimburse your employees, they’re not the only option. For example, you can choose to offer a taxable bonus or stipend for your employees to spend on their healthcare purchases.
However, if you’re reimbursing employees directly, or if you’re paying for employees’ premiums directly to the insurance company, this is considered a type of employer payment plan, which is out of compliance under the guidelines set by the Affordable Care Act.
How do I transition to a compliant arrangement?
Finally, if you don’t have any of the compliant plans discussed above, you’ll need to transition to a compliant arrangement. This is easier than you think, especially if you utilize PeopleKeep’s benefits automation software and award-winning customer support team to walk you through the whole process, start to finish.
We handle all of the most time-consuming tasks, like preparing and updating legal documents, reviewing reimbursements, and even sending you a weekly email report with any reimbursements you need to approve. That way you stay in complete control without having to worry about the fine print.
Whether you’re a small business owner looking to offer health benefits on a budget or a large employer ready to empower your employees to make their own healthcare decisions, health reimbursement plans make covering your employees’ individual health insurance possible. By following the guidelines in this article, you’ll be ready to compliantly reimburse your employees while offering a unique health benefit that sets you apart from the competition.
This article was originally published on July 5, 2010. It was last updated October 18, 2021.