More and more, businesses, startups, and nonprofits are setting up programs to reimburse employees for personal health insurance expenses, instead of contributing to a group health insurance plan. A common question is we receive is "what is the cost of a health insurance reimbursement program?"
Health Insurance Reimbursement Program - A Simple Overview
Most employers want to offer health benefits, but traditional group health insurance costs are unaffordable. Health insurance reimbursement programs are gaining popularity because they allow employers to reimburse employees for their individual (personal) health insurance premium expenses.
Compared with group health insurance, individual health insurance policies cost less. And, individual health insurance is now better for employees because it offers choice, portability, and is guaranteed-issue.
As an employer considers a formal reimbursement program, there are two main ways to structure the benefit:
Taxable Health Care Allowance
Tax-free Health Reimbursement Plan (such as a Healthcare Reimbursement Plan or HRP)
Health Insurance Reimbursement Program - How Much Does it Cost?
One of the biggest benefits of a reimbursement program is that the cost is 100% up to the employer. In other words, if an employer wants to contribute any amount to employees' health care costs, they can afford a reimbursement program.
To calculate the cost of a reimbursement program, follow three simple steps:
Monthly or Annual Budget: Set an overall budget to contribute to employee health benefits. For example, a 10-person nonprofit sets a budget of $15,000/year for health benefits.
Allowance Amounts: Within the overall budget, set employees' monthly allowance amounts. For example, the 10-person nonprofit allocates $125/month per employee. Or, they could allocate $200/month for the two program managers, and $100/month for the eight call center staff.
Third Party Provider Fees: Most employers use a third party provider such as a Defined Contribution or Section 105 Provider) for compliance and easy administration. Fees will vary by provider, but are usually charged as a one-time set up fee and per employee per month "PEPM" fee. As needed, adjust employee allowance amounts to stay within your overall budget.
With a health insurance reimbursement program, there are no minimum or maximum contribution amounts. So, the employer defines and controls all costs of the reimbursement plan.