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Is Our Health Insurance Reimbursement Plan Still OK?

Written by: PeopleKeep Team
December 1, 2015 at 12:00 PM

With the ongoing changes and complexities of insurance as rampant as ever, navigating your small business’ health insurance support for employees can be unnerving. One mistake and your well-meaning company can have a very expensive problem on its hands.

As of July this year, the government made it quite clear that Employer Payment Plans are subject to penalties of up to $100 per employee per day. That’s up to $36,500 a year per employee.

 Fortunately, ensuring compliance with the federal government’s Affordable Care Act is a relatively simple and straightforward process — as long as your small business stays informed and responds accordingly.

Here are some facts in response to the underlying question we receive so often from small businesses: “Is our health insurance reimbursement plan still OK?”

Not IRS Compliant

  • Employer Payment Plans — If you reimburse employees directly or pay for their premiums directly, your small business is not compliant
  • Standalone Health Reimbursement Arrangements (HRAs) with two or more participants

IRS Compliant

Facts About Healthcare Reimbursement Plans (HRPs)

Nearly 3 million U.S. small businesses do not offer traditional group health insurance. They are recognizing the financial benefits — to both employers and employees — and recruitment boost provided by Healthcare Reimbursement Plans (HRPs), which reside under IRS Tax Code 105. While traditional group health insurance works for some companies, HRPs are a key tool for many small businesses because:

  • An HRP is a group health plan set up by the employer, but it’s not insurance coverage. Employees purchase their own plans and are reimbursed for eligible expenses.
  • An HRP is completely funded by the employer.
  • Reimbursements are tax-deductible for the employer.
  • Eligible expenses for reimbursements through the HRP include preventive care and individual health insurance premiums. 

Yes, setting up an HRP for your small business initially requires a modest upfront time commitment, as the list of compliance requirements — including regarding the Affordable Care Act (ACA) — is lengthy. Online software services designed for small businesses can make this process much easier, though.

In the long run, HRPs help employers conserve significant administrative hours on a monthly basis. Also, both the business and the employees save money, as HRPs are distributed tax-deductible and received tax-free.

Small businesses with fewer than 50 employees aren’t required to provide health insurance support, but many view it as an important responsibility — one that high-quality professionals expect and appreciate in 2015.


If you’re concerned that your Healthcare Reimbursement Plan is still OK, determine whether it is IRS compliant. Keep in mind these key elements of a compliant HRP:

Do you have unanswered questions about ensuring compliance for your health insurance reimbursement plan? Please leave a comment below and we will answer your question shortly.

Topics: Health Reimbursement Arrangement

Additional Resources

Trying to decide which HRA is best for you? Take our quiz to find out.
Get our guide on how to offer health benefits with a small budget.