A healthcare 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 health benefits chiefly because the company makes a benefit allowance available, instead of choosing and administering a group health insurance policy from a carrier.
Healthcare reimbursement plans are growing in popularity because employees can choose the health insurance they want and get reimbursed for expenses. Small and midsized organizations 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 healthcare 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 healthcare reimbursement plans
Healthcare reimbursement plans are an employer-funded, tax-advantaged health benefit plan that allows companies to reimburse employees for their medical expenses.
A healthcare reimbursement plan is not health insurance. Rather, it is a way to provide allowances employees can use on their medical expenses, including insurance premiums.
How healthcare reimbursement plans work
Healthcare reimbursement plans are formal arrangements that require legal plan documents. Healthcare reimbursement plan documents must comply with all applicable federal regulations and include details about:
- who is eligible
- what can be reimbursed
- how reimbursements are approved
- how payments are distributed
- what happens in the event of a decision dispute
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Healthcare reimbursement plans are notional
Healthcare 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.
Healthcare reimbursement plans available today
As of 2020, there are three primary types of reimbursement plans available:
- QSEHRA (qualified small employer HRA). The QSEHRA is best for employers too small to be subject to the ACA employer mandate who want to keep things simple and offer a single benefit to all W-2 employees. Employers can specify whether they want to offer this benefit to just full-time employees, or to full- and part-time employees.
- ICHRA (individual coverage HRA). The ICHRA is one of the most flexible plans on the market. It allows employers to set different allowances and determine eligibility based on classes, such as:
- Temporary, who work for a staffing firm
- Employees covered under a collective bargaining agreement
- Employees in a waiting period
- Foreign employees who work abroad
- Employees in different geographic rating areas
- A combination of two or more of the above
- GCHRA (group coverage HRA). The GCHRA is best for employers who offer employees a traditional group health plan and want to assist employees with expenses like deductibles, copays, and eligible over-the-counter expenses.
Which healthcare reimbursement plan is right for you? Download our 2021 HRA comparison chart.
With a healthcare reimbursement plan, also known as an HRA, small to midsize organizations have an alternative to traditional group health insurance that enables them to offer a quality health benefit on a budget they control.
This post was originally published in February 2014. It was last updated December 8, 2020.
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