Understanding Executive Medical Reimbursement
When it comes to benefits, it is important to realize these executives and key leaders often have unique benefit needs and wants, and primary healthcare coverage and wellness programs often fail to fully meet them. With healthcare plan costs having risen so dramatically, though, it can be difficult to meet these needs by enriching the primary plan without exceeding budgetary constraints.
Shifting Healthcare Regulations
Supplemental executive medical reimbursement plans have long been popular as the go-to solution. These plans usually fund the cost-sharing obligations of the primary plan, such as co-pays and deductibles. They also provide additional benefits and services, including vision, dental and elective executive physicals or massage therapy, and may include timesaving services such as medical specialist matching.
With the passage of the Affordable Care Act (ACA) in March 2010, the healthcare regulatory landscape shifted. The law included new non-discrimination provisions and changes that have caused confusion about compliance and the current standing of executive medical reimbursement plans.
These plans still provide a viable way to meet executives’ healthcare needs while helping employers manage health plan costs and realize tax advantages—as long as they are compliant with existing regulatory guidance.
The regulatory landscape is continually evolving. In addition, new products frequently enter the market, which adds to the complexity of evaluating the right robust and compliant solutions for executive medical reimbursement plans.
With a compliant insurance plan, businesses can:
- Offer enhanced benefits only to highly compensated employees
- Deduct plan premiums as a business expense
For employees, reimbursements do not become taxable as ordinary income.
Given these significant benefits to the business, here are the key details that advisers need to know when determining if a plan is compliant.
Tax-Advantage and Discrimination
Executive medical reimbursement plans have been subject to IRS Section 105(h)1 rules since their inception. To be compliant, a plan must qualify as insurance. Only then can both the employer and employee realize the tax-advantaged benefits:*
- Employers can deduct healthcare premiums as an ordinary business expense..
- Reimbursements do not become taxable income for individual plan participants.
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