Reimbursement of healthcare expenses is a common strategy among employers of all sizes because it allows employers to control healthcare costs and provides employees more choice in how they spend their healthcare dollars.
For small businesses, healthcare reimbursement is an emerging alternative to offering traditional health insurance coverage.
This article provides an overview of the different types of healthcare expense reimbursement strategies, by what type of healthcare expenses they can reimburse.
Reimburse Personal Health Insurance
If the business would like to reimburse employees for their personal health insurance expenses, the types of plans available are:
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Section 105 Health Reimbursement Plan (HRP)
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One-person Stand-alone Health Reimbursement Account (HRA) - Only available to companies with one participant
Both of these types of reimbursement arrangements are 100% employer-funded, tax-advantaged, and notional arrangements. A notional arrangement means the business only reimburses employees after they have a qualified healthcare expense.
Reimburse Out-of-Pocket Medical Expenses
For businesses looking to reimburse employees for out-of-pocket medical expenses such as co-pays, prescriptions, and deductible expenses, there are a few options:
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Health Savings Account (HSA) - Note: employees must have a high-deductible health plan to qualify for an HSA
Help Employees Pay for Healthcare Expenses Pre-Tax
Lastly, there are types of plans that allow employees to pay pre-tax (or reimburse themselves tax-free) for healthcare expenses.
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Premium Only Plan (POP) - Less common today because they cannot be used with Marketplace plans
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Health Flexible Spending Account (FSA)
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Health Savings Account (HSA)
Related - HSA vs. HRA vs. HRP vs. FSA Comparison Chart
Conclusion
For small businesses looking to help employees with the cost of healthcare expenses there are several pre-tax reimbursement plans available such as HRAs, HRPs, HSAs, FSAs, and POPs. Which plan is best for your small business? Understanding how each type of reimbursement plan works and which types of healthcare expenses are reimbursable is a good place to start.
What questions do you have about reimbursement of healthcare expenses? Leave a comment below. We’ll help answer it.
