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Small Business Employee Benefits and HR Blog

Employee Eligibility for Premium Reimbursement Health Plans

August 4, 2014
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A common question from employers setting up a premium reimbursement health plan is about employee eligibility - what makes employees eligible for the plan?Employee eligibility for premium reimbursement

With a premium reimbursement health plan, the employer sets up a formal health plan to reimburse employees tax-free for individual health insurance. The employer designs the plan, determines employee eligibility, and sets healthcare allowance amounts. Employees purchase health insurance, and premium reimbursement software takes care of the rest.

Tip: In this article, we are referring to a premium reimbursement health plan set up using a tax-preferred Healthcare Reimbursement Plan.

What Determines Employee Eligibility?

Eligibility is based on how the employer sets up the plan, which varies company to company. There are two plan design options that impact eligibility:

  1. Employee Classes
  2. Waiting Periods

If an employee meets the criteria for the employee class and satisfies the waiting period, then they are eligible and should be enrolled in the plan.

Employee Classes

With a premium reimbursement health plan, the employer can give employees different contributions based on classes of employees. Similarly, the employer can offer the benefit to some classes of employees and not to others.

However, the one catch is that to comply with federal regulations the classes need to be based on bona-fide business differences and employers must treat all “similarly situated” employees equally. These differences may include job categories, geographic location, part-time or full-time status, etc.

Waiting Periods

When setting up the premium reimbursement plan, the employer sets a waiting period for each class of employees (maximum of 90 days). This is the period of time that must pass before a new employee is eligible for the benefit.

Example

ABC Manufacturing sets up a premium reimbursement health plan with two classes of employees:

  • Full-time managers, with a waiting period of 30 days

  • Full-time associates, with a waiting period of 45 days

In this example, all full-time managers who have been employed for 30+ days are eligible for (and should be enrolled in) the plan. Similarly, all full-time associates who have been employed for 45+ days are eligible and should be enrolled.

What Does NOT Impact Employee Eligibility?

There are two main factors that do not impact employee eligibility. These include:

  • The type of health insurance employees' have purchased (ex: individual health insurance, spousal coverage, etc.)

  • Whether or not the employee currently has health insurance

FAQ: Are Employees Eligible Who Have Health Insurance Through a Spouse's Workplace?

Yes. As mentioned above, the type of health insurance employees purchase does not impact their eligibility in the plan. As long as the employees meet the criteria for an employee class and satisfy the waiting period, they are eligible and should be enrolled. 

Also, employees paying premiums toward a spouse's workplace plan may be reimbursed via the premium reimbursement plan - as long as they are paying for an eligible premium on a post-tax basis (to avoid double-dipping).

What questions do you have about employee eligibility with premium reimbursement plans? Leave a question below.

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