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Small Business Employee Benefits and HR Blog

Premium Reimbursement - Which Medical Expenses are Covered?

Medical expenses covered by premium reimbursement plans

A premium reimbursement plan is a way for employers to help employees with their health insurance costs. So, what about other types of medical expenses like deductibles, prescriptions, and dental care? Can employees use their premium reimbursement plan for other medical expenses not covered by insurance?

Read on for what types of medical expenses a premium reimbursement plan may be used for.

Note - This question was 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 Plan?

Before we get into what types of medical expenses employees may use their premium reimbursement plan to cover, let’s get on the same page about what a premium reimbursement plan is.

A premium reimbursement plan is an employer arrangement to reimburse employees for individual health insurance. The most common way to do this is with a tax-free reimbursement plan (a “Section 105 Healthcare Reimbursement Plan.”)

However, employers may also use a taxable stipend. In this article, we are referring to a tax-free premium reimbursement plan.

Related: 5 Resources to Understand How Premium Reimbursement Works

What Medical Expenses Can Be Reimbursed?

A tax-free premium reimbursement plan can reimburse employees for:

  • Health insurance premiums, up to their available allowance

  • Unlimited basic preventive care services (typically already covered by the employee’s health insurance plan)

A tax-free premium reimbursement plan cannot reimburse employees for:

  • Out-of-pocket medical costs (except for basic preventive care)

Why Can’t Employees Use the Money on Out-of-Pocket Medical Expenses?

If you’re familiar with Health Reimbursement Accounts or MERPs (popular health insurance reimbursement vehicles prior to the passage of the Affordable Care Act), you may be surprised that a premium reimbursement plan cannot cover out-of-pocket medical expenses.

Why is this?

It all comes down to new reforms placed on group health plans. Under the Affordable Care Act, a group health plan (including a tax-free premium reimbursement plan) is not allowed to place limits on essential health benefits and must cover basic preventive healthcare services without cost-sharing.

Expenses such as doctor visits and prescriptions, for example, are essential health benefits. By allowing reimbursement of these types of out-of-pocket expenses up to a certain monthly or annual amount, the plan would be placing a limit on essential health benefits.

Health insurance premiums are allowed to be reimbursed up to a monthly or annual amount because, by definition, premiums are not an essential health benefit. An annual limit may be placed on this type of expense.

Conclusion

A tax-free premium reimbursement plan can be used to reimburse employees for health insurance premiums and basic preventive care services. It cannot, however, be used on other out-of-pocket medical expenses such as doctor’s visits and prescriptions. This plan design ensures compliance with the Affordable Care Act’s new reforms.

What questions do you have about premium reimbursement? Download the webinar to learn more, or leave a question below and we’ll be happy to answer it.