With the cost of group health insurance on the rise, employers are facing enormous cost challenges and are seeking cost-effective alternatives to group health insurance. The emerging solution is premium reimbursement for individual health insurance.
With a premium reimbursement plan, employers reimburse employees tax-free for individual health insurance policies.
Employers fix their costs on a monthly basis, and employees can choose a health insurance policy that best meets their health and financial needs.
Using Premium Reimbursement Software helps employers with the administrative tasks of the premium reimbursement plan and ensures compliance.
Why Use Premium Reimbursement Software?
Some employers consider self-administering a premium reimbursement plan without compliant software. However, remaining in compliance with federal regulations and health reform can be costly, time-consuming, and an administrative hassle for employers.
There are two main reasons employers should use Premium Reimbursement Software to administer their premium reimbursement plan: 1) Time savings and ease of use, and 2) Tax savings and compliance.
1. Time Savings & Ease of Use
A credible Premium Reimbursement Software provider eliminates the time, costs, and administrative hassle of offering health benefits. Employers who select a Premium Reimbursement Software provider can expect to:
Spend less than five minutes per month administering their reimbursement plan
Have access to their reimbursement plan online 24/7
Incorporate reimbursements with their existing payroll system and HR processes
2. Tax Savings & Compliance
Premium Reimbursement Software keeps the employer in compliance with three key areas:
a) Tax Savings & IRS Compliance
The IRS requires that a formal premium reimbursement plan (with IRS-compliant plan documents) be established in order for an employer to reimburse employees for their individual health insurance premiums tax-free.
The Premium Reimbursement Software provider will verify that each reimbursement is for an IRS-qualified health insurance policy, and save documentation on file for ten years in the case of an IRS audit.
The reimbursement plan must also comply with IRS non-discrimination rules. A compliant Premium Reimbursement Software provider should provide the option to separate employees into employee classes. These classes should be based upon bona-fide job criteria, including average hours worked per week and job description/function.
b) Federal Compliance
The federal government has guidelines for employers who want to contribute to employee’s IRS-qualified health insurance premiums under HIPAA, ERISA, and COBRA.
HIPAA (Health Insurance Portability and Accountability Act): Premium Reimbursement Software providers process employees' requests for reimbursements on their insurance premiums, keeping Protected Health Information (PHI) confidential from the employer. The employer never has access to their employees’ confidential medical information.
ERISA (Employee Retirement Income Security Act): Under ERISA, an employer may not endorse a specific individual health insurance plan. Since employees’ PHI is kept confidential, employers never need to know what policies were purchased.
COBRA (Consolidated Omnibus Budget Reconciliation Act): Employers with 20 or more participants are subject to COBRA. Employers must give their terminated employees the option to continue their participation in the reimbursement plan for a period after termination.
c) ACA/Health Reform
Lastly, the Affordable Care Act (ACA) introduced new requirements for group health plans (including premium reimbursement plans) including how benefit information is presented to employees (Summary of Benefits & Coverage, or SBC), new reporting forms (720/5500), and new plan design requirements (ex: prohibition on annual limits).
A credible Premium Reimbursement Software provider makes sure the employer has the appropriate documents, data, and plan settings in place to be ACA compliant.
For a full listing of ACA, ERISA, IRS, HIPAA, and COBRA compliance considerations, download this free compliance guide.
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