Must pair with group health
Under the ACA, this type of plan generally has to be integrated with a group medical plan the employee is enrolled in. It can't be used to reimburse individual insurance premiums.
All coverage
Coverage
Medical Expense Reimbursement Plan
An employer-funded plan that reimburses employees for out-of-pocket medical costs.
Who it's for
A medical expense reimbursement plan lets employers lower premiums with a higher-deductible plan while still protecting employees from large out-of-pocket costs.
- Employers facing steep renewal increases on their medical plan
- Groups where most employees have low to moderate medical use
- Businesses that want predictable premiums with a cap on their added exposure
What it covers
Typical coverage includes
- Deductibles on the group medical plan
- Copays and coinsurance, depending on plan design
- Other eligible medical expenses the employer chooses to include
How it works
How a medical expense reimbursement plan works
Raise the deductible
The business moves to a higher-deductible group medical plan, which lowers monthly premiums.
Set the reimbursement
You decide how much of the deductible and other out-of-pocket costs the business will reimburse.
Employees submit claims
When an employee has an eligible expense, they or their provider submit it to the plan administrator.
The employer pays only for claims
The administrator reimburses the expense from employer funds. The business pays only for claims actually made, plus an administration fee.
Before you decide
Common considerations
Funding and cost
The employer only pays when employees have eligible claims. Budget for the maximum possible exposure, but actual costs are often well below it.
HSA compatibility
Reimbursing the deductible generally makes employees ineligible to contribute to an HSA, so this plan usually replaces an HSA strategy rather than joining it.
Nondiscrimination rules
The plan can't favor highly compensated employees in eligibility or benefits.
Administration
A third-party administrator typically processes claims, keeps employee health information private, and handles COBRA notices.
FAQ
Frequently asked questions
Is a medical expense reimbursement plan the same as an HRA?
It's a type of health reimbursement arrangement (HRA) that's integrated with your group medical plan.
Are reimbursements taxable to employees?
No. Reimbursements for eligible medical expenses are generally tax-free to employees and deductible for the business.
What happens to money that isn't used?
It stays with the business. The plan is funded only as claims come in, so there is no account to forfeit.
Can a small business set one up?
Yes. Any size employer with a group medical plan can add one. Other types of HRAs are available for businesses that don't offer group coverage.
Will employees notice the higher deductible?
Not much, if the plan reimburses most of it. Employees still pay their usual copays and may briefly wait for a reimbursement.
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