Expense reimbursed insurance, also referred to as medical reimbursement insurance, is a type of supplemental insurance offered in the group or employer market.

Extra Layer

Supplemental insurance, as the name implies, is additional insurance used to help pay for out-of-pocket expenses that the primary medical insurance plan does not cover. Supplemental insurance is similar to primary medical insurance in how it works. Primary medical insurance policies provide the base level of benefits to a family and protects them against catastrophic claims costs. Supplemental health insurance is an extra layer of protection to cover out-of-pocket medical expenses.

Extra Layer

Supplemental insurance, as the name implies, is additional insurance used to help pay for out-of-pocket expenses that the primary medical insurance plan does not cover. Supplemental insurance is similar to primary medical insurance in how it works. Primary medical insurance policies provide the base level of benefits to a family and protects them against catastrophic claims costs. Supplemental health insurance is an extra layer of protection to cover out-of-pocket medical expenses.

Coverage for Routine and Unexpected

Expense reimbursed insurance plans refund employees for their out-of-pocket healthcare expenses according to the specified limits of the policy. These plans provide coverage for everyday (or routine) medical expenses as well as unexpected ones due to illness and injury. Examples of what expense reimbursed insurance plans can cover include:

  • deductibles
  • coinsurance
  • maintenance prescriptions
  • doctor visits
  • labs and other diagnostics

Some expense reimbursed insurance plans even offer coverage for 213(d) flex-type expenses that the primary insurance plan wouldn’t typically cover, like LASIK, brand name prescriptions, executive physicals or dental and vision expenses.

Coverage for Routine and Unexpected

Expense reimbursed insurance plans refund employees for their out-of-pocket healthcare expenses according to the specified limits of the policy. These plans provide coverage for everyday (or routine) medical expenses as well as unexpected ones due to illness and injury. Examples of what expense reimbursed insurance plans can cover include:

  • deductibles
  • coinsurance
  • maintenance prescriptions
  • doctor visits
  • labs and other diagnostics

Some expense reimbursed insurance plans even offer coverage for 213(d) flex-type expenses that the primary insurance plan wouldn’t typically cover, like LASIK, brand name prescriptions, executive physicals or dental and vision expenses.

Coverage for Select Employee Classes

Expense reimbursed insurance plans refund employees for their out-of-pocket healthcare expenses according to the specified limits of the policy. These plans provide coverage for everyday (or routine) medical expenses as well as unexpected ones due to illness and injury. Examples of what expense reimbursed insurance plans can cover include:

  • deductibles
  • coinsurance
  • maintenance prescriptions
  • doctor visits
  • labs and other diagnostics

Some expense reimbursed insurance plans even offer coverage for 213(d) flex-type expenses that the primary insurance plan wouldn’t typically cover, like LASIK, brand name prescriptions, executive physicals or dental and vision expenses.

Coverage for Select Employee Classes

Expense reimbursed insurance is an excepted benefit; that is, the benefits are excepted from ACA and other healthcare reforms. Because expense reimbursed insurance plans are excepted from nondiscrimination rules, they can be offered to select employee classes. This is why many employers use these plans as part of their recruitment and retention strategies.

Different From Indemnity-Based Supplemental

How do expense reimbursed insured plans compare to the other types of supplemental plans, called voluntary or indemnity-based supplemental, such as hospital indemnity plans, critical illness, accident insurance and disability plans? Expense reimbursed plans are different in two important ways.

  1. Expense reimbursed insurance plans are employer paid. Supplemental, voluntary, indemnity-based plans are sold on a contributory basis with the employee paying a portion of the premium, or sometimes fully voluntary where the employee pays the entire premium.
  2. Expense reimbursed insurance plans provide coverage for routine and unexpected medical expenses. There are no event-driven limitations, such as a hospital stay or a cancer diagnosis.

Different From Indemnity-Based Supplemental

How do expense reimbursed insured plans compare to the other types of supplemental plans, called voluntary or indemnity-based supplemental, such as hospital indemnity plans, critical illness, accident insurance and disability plans? Expense reimbursed plans are different in two important ways.

  1. Expense reimbursed insurance plans are employer paid. Supplemental, voluntary, indemnity-based plans are sold on a contributory basis with the employee paying a portion of the premium, or sometimes fully voluntary where the employee pays the entire premium.
  2. Expense reimbursed insurance plans provide coverage for routine and unexpected medical expenses. There are no event-driven limitations, such as a hospital stay or a cancer diagnosis.

This chart shows how expense reimbursed insured and indemnity based supplemental compare.

Indemnity-Based Insurance

Expense Reimbursed Insured

Supplemental Insurance

Yes Yes

Employer-Funded

Maybe Yes

Event-Driven Limitations

Yes No

Carve-Out Coverage

Yes Yes

Tax-Efficient*

Depends Yes

Note on Tax-Efficiency*: Since payment from voluntary plans typically are not based on the actual expense incurred, employees may end up paying taxes on the funds received (if those funds exceed the expenses incurred and depending on how the premium is paid for). However, expense reimbursed insurance pays the actual patient out-of-pocket costs and, therefore, creates no potential for additional “income,” so reimbursements are generally nontaxable to employees.

*This is not local, state or federal tax advice as each person and company is unique. It is recommended that you seek the independent counsel of a professional tax adviser.

This chart shows how expense reimbursed insured and indemnity based supplemental compare.

Indemnity-Based Insurance Expense Reimbursed Insurance
Supplemental Insurance Yes Yes
Employer-Funded Maybe Yes
Event-Driven Limitations Yes No
Carve-Out Coverage Yes No
Tax-Efficient* Depends Yes

*This is not local, state or federal tax advice as each person and company is unique. It is recommended that you seek the independent counsel of a professional tax adviser.

Note on Tax-Efficiency*: Since payment from voluntary plans typically are not based on the actual expense incurred, employees may end up paying taxes on the funds received (if those funds exceed the expenses incurred and depending on how the premium is paid for). However, expense reimbursed insurance pays the actual patient out-of-pocket costs and, therefore, creates no potential for additional “income,” so reimbursements are generally nontaxable to employees.