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Small Business Employee Benefits and HR Blog

Premium Reimbursement and Group Health Rules

Premium reimbursement arrangements and group health rulesAs employers evaluate premium reimbursement arrangements, it is common to have questions about the structure of the reimbursement plan and where it fits in with the Affordable Care Act (ACA) reforms.

Is premium reimbursement considered health insurance? Does it satisfy the employer mandate? Is it a group health plan? Does it count as minimum essential coverage?

In this article, we’ll answer these questions to help you get a handle on premium reimbursement rules.

Note - These questions were asked during our recent webinar, Can Tax-Free Premium Reimbursement Work for You? If you'd like to download the on-demand webinar and slides, click here.

What is Premium Reimbursement?

Premium reimbursement is a health benefits model where the employer reimburses employees for individual health insurance, instead of offering a group health insurance policy.

For this article, we are discussing a tax-free premium reimbursement arrangement where the employer uses a self-insured medical reimbursement plan to give employees an allowance to spend on health insurance.

Is a Premium Reimbursement Arrangement Health Insurance?

No. A premium reimbursement arrangement is a self-insured medical reimbursement plan. Premium reimbursement does not provide health insurance coverage; it provides reimbursement for eligible healthcare expenses.

Is a Premium Reimbursement Arrangement a Group Health Plan?

Yes. A premium reimbursement arrangement is a group health plan. This is important because as a group health plan, the arrangement is subject to ERISA, the ACA reforms on group health plans, and other applicable federal rules under HIPAA, IRS, and COBRA.

Related: Group Health Plan vs. Group Health Insurance Plan - What's the Difference?

Is a Premium Reimbursement Arrangement an Eligible Employer-Sponsored Plan?

No. Under the ACA, employers with 50 or more employees are mandated to offer an “eligible employer-sponsored plan” (i.e. minimum essential coverage). Although a premium reimbursement arrangement is a group health plan, it is not health insurance and it does not meet the definition of an eligible employer-sponsored plan.

According to IRC Section 5000A(f)(2):

The term “eligible employer-sponsored plan” means, with respect to any employee, a group health plan or group health insurance coverage offered by an employer to the employee which is—

(A) a governmental plan (within the meaning of section 2791(d)(8) of the Public Health Service Act), or

(B) any other plan or coverage offered in the small or large group market within a State.

Such term shall include a grandfathered health plan described in paragraph (1)(D) offered in a group market.

Does a Premium Reimbursement Arrangement Satisfy the Employer Mandate?

No. A premium reimbursement arrangement is not an eligible employer-sponsored plan and does not satisfy the ACA’s employer mandate.

But remember, small employers (with fewer than 50 FTE employees) are not mandated to offer health insurance coverage.

Larger employers (with 50+ FTE employees) may still offer a premium reimbursement arrangement instead of group health insurance coverage, but they need to factor in the cost of fees if/when an employee purchases subsidized health insurance coverage.

Does a Premium Reimbursement Arrangement Satisfy the Individual Mandate for Employees?

No. A premium reimbursement plan is not an “eligible employer-sponsored plan” (i.e. minimum essential coverage) and does not satisfy the individual mandate.

To avoid the individual shared responsibility payment, employees need to be covered under a qualified health insurance policy. Employees can use the premium reimbursement arrangement to be reimbursed for their premium, or a portion of their premium.

Conclusion

A premium reimbursement arrangement is a group health plan and must abide by applicable federal rules under ERISA, ACA, HIPAA, IRS, and COBRA. However, a premium reimbursement arrangement is not health insurance coverage and is not an eligible employer-sponsored health plan. As such, it does not satisfy the ACA’s employer mandate for larger employers.

What questions do you have about the group health rules for premium reimbursement arrangements? Leave a comment below and we’ll help answer.

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The Comprehensive Guide to the Small Business HRA