This section outlines how to set up and implement a Premium Reimbursement Arrangement.
There are three simple steps to set up a Premium Reimbursement Arrangement.
First, cancel the group health insurance plan (if one is offered). Most plans can be canceled at any time. When a plan is canceled, all those covered will be eligible for a special enrollment period for individual health insurance.
This means employees are eligible to purchase individual health insurance outside of the annual open enrollment period (ex: November 15, 2014 to February 15, 2015). Eligible employees will also be able to access premium tax credits.
To set up a Premium Reimbursement Arrangement, first decide how much the business will contribute to employees’ health insurance expenses. Businesses can provide the same contribution amount (“allowance”) to all employees, or offer a different allowance amount by class of employee and/or family status.
Then, work with a Reimbursement Software Provider to set up a formal plan. You’ll have two options:
Next, educate employees about how individual health insurance and premium reimbursement works, and how it benefits employees and their families.
Lastly, employees purchase individual health insurance policies with their own money and submit a reimbursement request. The business reimburses employees on payroll.
With a tax-preferred Premium Reimbursement Arrangement, the business only reimburses employees for eligible premium expenses, up to the amount of their healthcare allowance. Without annual renewal increases or minimum contribution amounts, the business is free to set and control all costs.
Administration Software for a Premium Reimbursement Arrangement
Premium Reimbursement Arrangements are an alternative to traditional employer-sponsored health benefits, allowing companies to reimburse employees for individual health insurance. Employers use a Premium Reimbursement Administration Software to stay compliant, and to make administration easy.
1. Employee Education & On-Boarding
While this first feature isn’t entirely a "software" feature, it is one of the most important considerations of offering a Premium Reimbursement Arrangement: employee education and company on-boarding. The Premium Reimbursement Administration Software should provide you a toolkit to help your company:
- Understand the benefit (What is premium reimbursement? How does it work?)
- Understand the benefits of individual health insurance
- Learn how to request reimbursement and use their participant portal
2. Employee Allowances
The Premium Reimbursement Administration Software should allow you to give employees allowances monthly or at any time on an exception basis—with automatic monitoring of HIPAA and ERISA discrimination compliance rules. Deferred allowances (a waiting period) should be possible for new hires, and suspended allowances should be allowed for former employees that employers hope to re-hire on a seasonal basis.
3. Reimbursement Request Submission
Employees should be able to submit requests for reimbursement online, by fax, or by mail, and immediately receive an email acknowledging their request and providing an online link to monitor status. Documentation should be permanently available online for convenient access by employees.
4. Reimbursement Processing
The Premium Reimbursement Software Administration provider should process requests within 24 hours and employees should be able to inquire about their request via online chat, email, fax, mail, or telephone. No request should be rejected for improper or incomplete submission without multiple contacts. All employee contact should leave clear audit trails and meet appropriate regulatory guidelines (e.g. ACA, IRS, HIPAA, ERISA, and SAS 70). Look for software that provides “real-time” tracking of requests, available online 24/7.
5. Reimbursement Requests
Employees should receive email notification when their request is approved and again confirming when (and how) it is reimbursed. Reimbursement should be administered individually or on a periodic batch basis via check, payroll addition, or direct deposit leaving a clear and permanently-available audit trail.
6. Employee Ledger
All employees should have access to an online ledger showing their current balance, allowance, requests, and reimbursements including permanent storage of receipts, relevant tax information, Plan Documents, and the ability to save or export their own medical information via the administration platform.
7. Integrated Electronic Plan Documents, SPD, and Employee Signature
The Plan Document, Summary of Benefits and Coverage (SBC), and SPD (Summary Plan Description) should be electronically created, readily accessible online, and signatures should be collected electronically. Employers should be able to administer a change to benefits for any specific Class of Employees at any time and the electronic documents should automatically change and, where required, new electronic signatures should be collected when the employee is next online.
8. Classes of Employees
Employers should be able to instantly create unlimited different Classes of employees with each Class receiving different benefits by employee family status.
9. Employee Enrollment & Termination
Employers should be able to instantly enroll or remove employees in real-time on an individual or batch basis, with automatic printing of employee welcome kits and other appropriate plan administration information.
10. Plan Setup
Employers should be able to completely set up and/or change both their premium reimbursement Health Plan and their Plan Documents simultaneously online.
Employers should be able to view all reimbursements by employee or by Class of employees, and monitor in real-time claim information for each Class of employees. Employees should be able to see 3-5 prior years of history.
12. Tax Forms and Information
All information for required administration reporting (e.g. 5500 for employers with more than 100 employees) should be available online in real time, and non-eligible plan participants (e.g. independent contractors, owners of Sub S companies) should receive appropriate 1099 information.
13. Personal Health Insurance Distribution
Premium Reimbursement Software should automatically provide the employer’s health insurance broker a CRM (Customer Relationship Manager) to best serve their employees—including automatic notification to the broker when an employee’s premium reimbursement plan status changes due to family additions, promotions, etc.
14. HIPAA and ERISA Compliance
The employer should be automatically protected and the plan administration made HIPAA Compliant through technology rather than the training of administering employees. For example, employers should not be able to view HIPAA-protected employee information, and should automatically follow Department of Labor, HIPAA, and ERISA guidelines for employers allowing insurers’ access to their employees.
Frequently Asked Questions about Premium Reimbursement Arrangements
This section answers frequently asked questions (FAQs) about Premium Reimbursement Arrangements.
What is a Premium Reimbursement Arrangement?
A Premium Reimbursement Arrangement allows companies to reimburse employees for individual health insurance premiums, as an alternative to group health insurance.
How does a Premium Reimbursement Arrangement work?
With a Premium Reimbursement Arrangement:
The company sets monthly healthcare allowances.
Employees purchase their own health plan.
Employees submit a reimbursement request.
One the request is approved, the company reimburses employees for the approved expense via payroll, check, or direct deposit.
How is a Premium Reimbursement Arrangement Structured?
A tax-preferred Premium Reimbursement Arrangement is a Section 105 Self-insured Medical Reimbursement Plan. It is structured to reimburse employees for health insurance premiums up to a specified monthly healthcare allowance, and basic preventive health services as required by Public Health Services (“PHS”) Act Section 2713.
How much time does it take the company to administer a Premium Reimbursement Arrangement?
With the right Administration Software, a Premium Reimbursement Arrangement takes less than 5 minutes per month to administer online. Companies use the software to add approved reimbursements to payroll. There are no time-consuming annual renewals, and employees maintain a direct relationship with the insurance company of their choice.
How does a Premium Reimbursement Arrangement work for employees?
Employees select and purchase an individual health policy that best fits their families' needs, choosing any plan, from any carrier.
Employees submit a reimbursement request for their premium expense, and are reimbursed up to the amount available in their balance. Employees can keep their same network and doctors, and pick a coverage level that fits their health needs. Individual health plans cost 20% - 60% less than traditional group plans, and tax credits may be available to qualifying employees.
Is a Premium Reimbursement Arrangement health insurance?
No. A tax-preferred Premium Reimbursement Arrangement is not health insurance. It is a Self-insured Medical Reimbursement Plan, allowed by Section 105 of the IRS code.
What type of healthcare expenses are reimbursable through a Premium Reimbursement Arrangement?
Healthcare expenses that may be reimbursed through a Premium Reimbursement Arrangement include qualified health insurance premiums and basic preventive health services.
Is there a minimum or maximum number of participants that must enroll in a Premium Reimbursement Arrangement?
No. Companies of all sizes can use Premium Reimbursement Arrangements. Additionally, there are no required minimum participation requirements, and the company determines the eligibility requirements during implementation.
Do you have additional questions? Contact us. We’d be happy to help.
Additional Reading on Premium Reimbursement Arrangement
The Do's and Don'ts of Premium Reimbursement
Employers can provide reimbursement for premiums, however they should set up a formal plan and be aware of the do's and don'ts. We'll cover this and other best practices for Premium Reimbursement. >> Read more.
How to Calculate Cost Savings: Group Health Insurance vs. Premium Reimbursement
As small and medium sized employers evaluate health benefits, they consider two main approaches: group health insurance or reimburse employees for individual health insurance (aka premium reimbursement). One of the key decision-making factors is cost. This article outlines five steps to calculate the cost savings of group health insurance vs. premium reimbursement. >> Read more.
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Whiteboard Session - Premium Reimbursement [Video]
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Why Premium Reimbursement for Individual Health Insurance Is About to Explode
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Why Use Premium Reimbursement Software?
Using Premium Reimbursement Software helps employers with the administrative tasks of the premium reimbursement plan and ensures compliance. >> Read more.
The ACA Rules for Premium Reimbursement Plans
A common question is how the Affordable Care Act (ACA) impacts these types of healthcare reimbursement plans. This article examines ACA rules for premium reimbursement plans. >> Read more.
The IRS Rules for Premium Reimbursement Plans
This article examines the IRS rules for these types of tax-preferred premium reimbursement plans. >> Read more.
The 4 Key Tax Codes That Allow Tax-Preferred Premium Reimbursement
As businesses transition to premium reimbursement plans, it is important to understand the four key Internal Revenue Code (IRC) sections that allow for tax-preferred premium reimbursement. >> Read more.