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Small Business Employee Benefits and HR Blog

Your Personal Guide to Employer Reimbursement for Health Insurance

There’s a lot of buzz surrounding health insurance reimbursement (such as Health Reimbursement Plans) for employees nowadays -- many small business owners are wondering how to offer it and if it’s compliant. But, when it comes down to it, reimbursing your employees for health insurance is easier to do than you think.

We’ve broken down some of the main topics you need to know in order to get a good grasp on reimbursing your employees for their health insurance.                                                            

A Simple Explanation of How Employer Reimbursement for Health Insurance Works

Health insurance can be complicated, but it doesn’t have to be. You can reimburse your employees for individual health insurance even without a complicated knowledge of the subject. In fact, when using Healthcare Reimbursement Software, you simply decide how much you want to contribute each month to your employees’ individual health insurance premiums and the software takes care of the rest.


Can Employers Compliantly Reimburse Employees for Individual Health Insurance?

Reimbursing your employees for individual health insurance is pretty simple, but is it compliant? If a Section 105 plan is set up and administered it is compliant to reimburse your employees for individual health insurance.

How? Under current code and regulations, employers are allowed to use a limited purpose Section 105 medical reimbursement plan (such as a Healthcare Reimbursement Plan) to reimburse employees for individual health insurance premiums. This is similar to the way employers contribute to group premiums.

How Can an Employer Reimburse Employees for Individual Health Insurance?

Knowing you can compliantly reimburse your employees for their individual health insurance premiums through a plan such as a Healthcare Reimbursement Plan (HRP), how is it done?

Step 1 - The employer decides who will administer the HRP (ex: Administration Software Provider, a third-party administrator, or self-administer).

Step 2 - The employer sets employee eligibility requirements and determines the monthly allowance amounts.

Step 3 - The employer enrolls eligible employees into the plan and distributes all required plan documents.

Step 4 - Employees purchase health insurance with their own money, and submit documentation for reimbursement.

Step 5 - A HIPAA-compliant claims processor reviews the reimbursement request and approves or rejects the request.

Step 6 - If the request is approved, the employer reimburses the employee for the approved reimbursement, up to the balance of each employee's HRP.

Tip: In order to remain compliant and evade costly mistakes, it’s best to utilize a Healthcare Reimbursement Software company. This takes the guesswork out of reimbursing your employees and takes the work off your shoulders.

Related article: Why You Need Compliant Healthcare Reimbursement Software

Why Reimburse Your Employees for Individual Health Insurance?

Knowing the basic steps of reimbursing your employees for their individual health insurance, you may be wondering if it’s the right strategy for your small business. This is understandable.

As such, here are some benefits of implementing a healthcare reimbursement plan such as an HRP.

  • Employees can choose to use your allowance or not. If they choose not to, the money stays in the business.

  • It is a notional arrangement. You reimburse employees directly only after your employees incur approved healthcare expenses.

  • There are no contribution limits. You can set, control and predict all health benefits costs.

  • Employees are happier because they have access to the best, affordable healthcare.

  • Individual health insurance is 20 to 60 percent less expensive than group health insurance.

Conclusion

As an employer, reimbursing your employees for their health insurance opens up new doors for offering affordable health benefits, while giving  your employees access to the best health insurance.

Health insurance can be complicated, but we hope this quick guide has helped you to understand the ins and outs of reimbursing your employees for health insurance.

How can reimbursing your employees for their health insurance benefit your small business? Let us know in the comments below.