Mythbusters

executive medical reimbursement plans are dead

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It’s no surprise that the world of employee benefits has a lot of myths and misconceptions, especially since ACA was introduced. Take executive medical reimbursement plans for instance. Some wonder, “Is that still allowed?” Let’s dive into the details and explain what it takes to offer a viable executive medical reimbursement plan today. 

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Executive medical
reimbursement
plans are dead.

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You can still offer executive
plans as long as they meet
applicable regulations.

Characteristics of a compliant plan:

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Fully Insured

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Supplemental
in Nature

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Excepted Benefit

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Safe Harbor and
Value of Coverage

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Fully Insured

Having a policy isn’t enough to consider it fully insured in the eyes of the IRS. You need to look beyond the policy at the financial structure. As stated in section 105 of the tax code, a claims-plus-admin-fee arrangement where the employer pre-funds the claims likely does not meet regulatory requirements.* You should evaluate if the plan provider can demonstrate that there is realistic risk transfer to the carrier and risk distribution among groups. If a plan is not fully insured, the risks include:

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  • 105(h) non-discrimination rules apply
  • Taxes, fees and audits for both the company and individual**

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Excepted Benefit

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A myth within the myth is that new ACA non-discrimination rules apply to all insurance plans. This is not true for insurance plans that qualify as excepted benefits. They can still be offered to just select classes of employees. But here’s the key:
  • Must be insurance to be an excepted benefit, so if you fail on being fully insured, it’s not an except benefit
  • Must meet the regulatory requirements that apply to the specific sub-type of excepted benefits

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Supplemental in nature

The core type of excepted benefits that apply to executive medical reimbursement plans is “similar supplemental coverage.” To qualify, a plan needs to be designed to complement primary health insurance plans and fill gaps in coverage such as co-pays, deductibles and other cost-sharing expenses. It can also provide first dollar coverage on expenses that are not considered essential health benefits (EHBs), such as massage therapy and other wellness expenses.
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  • Check out the policy to ensure it has the right structure to comply.
  • Ask how they control not paying first dollar on EHBs.

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Safe harbor and value of coverage

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One of the components of similar supplemental excepted benefit compliance is understanding Safe Harbor guidelines, which includes looking at the actuarial value of the plan in relation to the primary coverage. On the surface it may look like a “no way it can qualify” proposition. But there is more to the story. Ensure the plan can demonstrate exactly how and why this requirement is met.
  • What is the methodology for calculating this?
  • If the plan provider says it’s all premium to qualify as insurance, it needs to count as premium for this purpose too.

Ultimate Health

Ultimate Health by ArmadaCare is a fully insured, full risk-transfer health insurance plan that is designed for your key leaders and complements and enhances your primary coverages. For close to two decades, ArmadaCare has helped companies keep leaders happy, healthy and productive with Ultimate Health’s robust coverage, tax efficiencies,** valued support services and access to a unique executive physical program. 

A key component of a competitive executive benefits package, Ultimate Health is a powerful way to help those who drive company performance feel valued and rewarded. In fact, 98.4% of enrolled executive members say it’s the most important or an important benefit. (ArmadaCare Engagement Survey, 2022)

Interested in learning more?

Get in touch with one of our experts. You choose the time that’s best for you, and we’ll do the rest!

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*Section § 1.105-11 (Self-insured medical reimbursement plan) further outlines the taxability question:

(a) In general. Under section 105(a), amounts received by an employee through a self-insured medical reimbursement plan which are attributable to contributions of the employer, or are paid by the employer, are included in the employee’s gross income unless such amounts are excludable under section 105(b)….

**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.