Today, fewer than 50% of small businesses offer employees health insurance, largely because of the cost. That's over 2.3 million small businesses that don't offer health insurance. However, most want to offer health benefits to recruit and retain top employees. For this reason, small businesses are thinking outside the box and evaluating solutions to reimburse employees for individual health insurance.
To reimburse employees for individual health insurance, employers should follow these three easy steps.
Step 1: Employer Sets up a Formal Reimbursement Plan
The first step is for the employer to set up a self-insured medical reimbursement plan, also called a Healthcare Reimbursement Plan (HRP) or Section 105 Medical Reimbursement Plan. To comply with all applicable rules and regulations, the reimbursement plan is structured to reimburse employees for:
Health insurance premiums up to a specified monthly healthcare allowance, and
Basic preventive health services without cost-sharing.
When the employer sets up the reimbursement plan, they determine monthly healthcare allowances and define which employees are eligible for the plan. Allowances can be provided evenly to all employees (ex: $250/month to all full-time employees), or provided by class of employee (ex: $350/month to full-time managers and $200/month to associate-level employees).
Tip: Employers can also reimburse employees with a taxable healthcare allowance. But, most employers and employees prefer a tax-free solution because of the additional cost savings.
Step 2: Employees Purchase a Health Insurance Plan
Each employee purchases an individual or family health insurance plan with their own money.
Employees can work with a designated health insurance broker, shop online, or purchase a health plan through their state's Health Insurance Marketplace.
Unfamiliar with individual health insurance? See: 5 Things Small Employers Need to Know about Individual Health Insurance
Step 3: Employer Reimburses Employees
Employees request reimbursement from the reimbursement plan. Once the premium expense is substantiated, the employer reimburses employees tax-free.
Tip: To ensure compliance and to make administration easy, most employers use a premium reimbursement software provider.
What questions do you have about how to reimburse employees for individual health insurance? Leave a comment, or click here to download the Compliance 101 eBook.