Small Business Employee Benefits and HR Blog

Health care reimbursement plan - What is it?

August 23, 2017
Health care reimbursement plan - what is it?

What is health care reimbursement? 

A health care reimbursement plan, sometimes called a health reimbursement arrangement, is a health benefit where employees are reimbursed by their company for their medical expenses. This differs from traditional benefits chiefly because the company makes a benefit allowance available, instead of choosing and administering a health insurance policy.

Health care reimbursement plans are growing in popularity because employees can choose the health insurance they want and get reimbursed for expenses. Small businesses like reimbursement plans because using them allows them to avoid the messy and time-consuming world of group health insurance while keeping their benefits budget predictable.

The term health care reimbursement plan has also been used to describe a type of Section 105 self-insured medical expense reimbursement plan (MERP) designed for premium reimbursement.

This post will describe how reimbursement plans work and what kinds of reimbursement plans are available today.

Definition of health care reimbursement plans

Health care reimbursement plans are an employer-funded, tax-advantaged health benefit plan that allows companies to reimburse employees for their medical expenses.

A health care reimbursement plan is not health insurance. Rather, it is a way to provide allowances employees can use on their medical expenses.

How health care reimbursement plans work

Health care reimbursement plans are formal arrangements that require legal plan documents. These health care reimbursement plan documents must comply with all applicable federal regulations and include details on:

  • who is eligible,
  • what can be reimbursed,
  • how reimbursements are approved,
  • how payments are distributed, and
  • what happens in the event of a decision dispute.

Interested in offering a health reimbursement benefit? PeopleKeep can help. Check out how the PeopleKeep software works and evaluate whether personalized benefits are right for your business.

Health care reimbursement plans are notional

Health care reimbursement plans are an agreement between the company and employees. In other words, the plan is a notional arrangement where no funds are expensed until reimbursements are paid. Through a reimbursement plan, the company reimburses employees directly only after the employees incur an approved health expense.

Health care reimbursement plans available today

As of 2018, there are two primary types of reimbursement plans available to small businesses: the group coverage HRA and the qualified small employer health reimbursement arrangement (QSEHRA).

The group coverage HRA is a reimbursement plan that is paired with a group health insurance policy. For most small businesses, this isn’t available because group health insurance already isn’t an option.

The QSEHRA is a new small business HRA that was signed into law in December 2016. It allows companies to reimburse employees and their families tax-free for health insurance premiums and other out-of-pocket medical expenses. It’s available to small businesses with fewer than 50 full-time employees.

To learn more about how this small business HRA works, download The Comprehensive Guide to the Small Business HRA.

Editor's Note: This post was originally published in February 2014.

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