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Small Business Employee Benefits and HR Blog

How Premium Reimbursement Actually Works

This health benefits example is meant to illustrate the potential cost savings for small businesses, and for employees, through using a premium reimbursement plan approach with the premium tax credits. The premium tax credits are available to eligible employees through the Health Insurance Marketplaces.Amy's Premium Reimbursement Example

Amy's Premium Reimbursement Example

In 2014, "Amy’s" employer decided not to offer traditional healthcare coverage. Instead, Amy’s employer offered a premium reimbursement plan which lets Amy, and other employees, take advantage of the premium tax credits.

Amy earns $44,000 as an HR Manager at a software startup company in Washington state. Amy is 44 years old with two children.

Because Amy's 22-person company decided not to offer a traditional group health insurance plan, Amy is eligible for a premium tax credit based on her income and family size.

Amy purchases individual health insurance for herself and her two children from her state’s Health Insurance Marketplace for a discounted price of $264/month. This includes a premium tax credit of $326/month.

Amy’s company contributes $200/month pre-taxed through her premium reimbursement plan. After the premium tax credit and her employer’s contribution, Amy’s total out-of-pocket amount is only $64/month.

How does this type of benefit approach save Amy and her company on the cost of her health insurance? Let's crunch the numbers.

Cost of Amy's Health Insurance with Premium Reimbursement and the Premium Tax Credits

With a premium reimbursement and premium tax credits approach, Amy's total premium cost is $590/month through her health insurance marketplace. This premium amount is split three ways: her premium tax credit is $326/month, her employer contributes $200/month through the premium reimbursement plan, and Amy pays $63/month.

Individual Health Insurance

Source: Affordable Care Act 101

Cost of Amy's Health Insurance with Group Health Insurance

If Amy’s employer offered a group health insurance plan, Amy's total premium cost would have been $1,366/month through her employer's group plan. This premium amount would have been split two ways: in this example her employer would have contributed 75% for a family plan and paid $1,024/month, and Amy would pay $342/month.

dcsubsidies2

Source: Affordable Care Act 101

Savings Overview

Because Amy’s employer offered health insurance coverage through premium reimbursement paired with the premium tax credits (instead of a traditional group health plan), both the company and Amy saved money for same or better health insurance coverage.

In this example, Amy's employer saved $824/month or $9,888/year.

Amy saved $278/month or $3,336/year.

What questions do you have about premium reimbursement and the premium tax credits?

Photo Credit: Hubspot