When you talk about executive medical reimbursement plans, also called expense reimbursed insurance, it’s not rare to get questions like, “Is that still allowed,” or “I thought you couldn’t do that anymore?” Let’s tackle those questions and get to the bottom of it.
Characteristics of Today’s Reimbursement Plans
- Excepted benefit
- True gap-filling coverage
Not all reimbursement plans are created equal, not even the ones that are still on the market today. To remain compliant, you need to have the right structure. While this may seem like a nominal variance, it really makes all the difference.
Needless to say, the executive medical reimbursement plans of yesteryear were not structured like this and neither were some of the reimbursement plans you may have seen recently exit the market, which is a reason these benefit options seem to be dwindling. But, that doesn’t mean they’ve all gone away.
There are medical reimbursement options that are still viable!
Fully insured reimbursement plans are designed to be compliant. This is because (1) self-insured plans, including cost-plus plans, don’t allow coverage to be offered to select employee groups due to longstanding nondiscrimination rules. And (2) having a self-insured reimbursement plan can expose the company and its employees to compliance and tax risks.
Today’s reimbursement plans are supplemental in nature, which means that they can be layered on top of a primary plan. But unlike voluntary supplemental plans, like hospital indemnity or critical illness insurance that provide a lump sum based on the event or illness, reimbursement plans—you guessed it—reimburse based on the actual out-of-pocket expense incurred.
Excepted benefits are benefits excepted from ACA nondiscrimination and other rules, meaning that these benefits can be offered to select employee classes. To qualify as an excepted benefit, a plan must fit into one or more of four categories. Reimbursement plans generally fit into the similar supplemental category. If a reimbursement plan does not qualify as an excepted benefit and it’s offering coverage to select employee groups, it may not comply with IRS requirements. You can learn more about how to recognize an excepted benefit here.
Because medical reimbursement plans can be offered to select employee classes, they are an ideal way to boost employee recruitment strategies. Today’s medical reimbursement plans differ from the MERPs of the past also in that they offer different levels of aggregate annual coverage, so some plans can get employees closer to “100% coverage” while others provide a sizeable boost, and some just offer medical reimbursement in-line with the primary plan’s coverage. This gives companies more flexibility in the type of reimbursement plan they want, and can afford, to offer each employee constituency.
True Gap-Filling Coverage
Also different from many other forms of supplemental insurance, reimbursement plans don’t have disease or event conditions that must be met before coverage kicks in. Voluntary plans will typically provide coverage when an unexpected illness or hospitalization occurs, depending on the scope of coverage, but generally provides little for the everyday coverage gaps that may be incurred, like physician co-pays or prescription expenses. Fully insured reimbursement plans actually fill gaps by providing coverage for everyday and unexpected health expenses.
So, are executive medical reimbursement plans still allowed? Yes! As long as they are structured correctly as fully insured excepted benefits designed specifically to supplemental primary medical plans by filling gaps. It may sound like a doozy, but it’s worth it to find out if the reimbursement plan you have or are thinking about implementing is compliant with today’s standards. Join us for a live webinar where we’ll cover this topic in more detail and have some of your questions answered!
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.