What You Need to Know About Medical Reimbursement

Americans are having a tougher time affording healthcare, so to offset some of the costs the government allows employers to take a designated amount of each person’s paycheck tax-free to be used for medical expenses. This article will help you understand what you need to know about medical reimbursement. Since the “Affordable Care Act” was put in place, some of the policies have changed and we have included some helpful “need to know” information.

What You Need To Know About Medical Reimbursement

Medical reimbursement is a health plan through your employer that takes money out of your check tax free and places it in a healthcare spending account. There are a few different types:

  • Health Reimbursement Arrangements (HRA)
  • Healthcare Reimbursement Plans (HRP)
  • Health Savings Accounts (HAS)
  • Flexible Spending Accounts (FSA)

You can use the medical reimbursement plan with your health insurance to pay extra expenses or you can choose not to use group health insurance and use your medical reimbursement plan to pay for all of your medical expenses and not use health insurance at all.

These plans help you save money on taxes because the deducted portion is non-taxable. You also have the reassurance that whenever you have a healthcare expense, there is money in an account to help pay for it.

Here are detailed explanations for each of these types of accounts:

HRA or Health Reimbursement Arrangement

Also called Health Reimbursement Account, this is approved by the Internal Revenue Service funded by your employer to reimburse you for any out-of-pocket healthcare costs and any premiums you pay for your health insurance. You cannot use this type of plan as a health insurance. Your company places this money in an account for you to use for any medical expenses which are not covered by insurance.

HRP or Healthcare Reimbursement Plan

You company funds the plan to help reimburse you for insurance premiums that you pay on individual health insurance. This plan also helps you with out of pocket medical expenses and is tax-free.

HASor Healthcare Spending Account

You designate a certain amount of each paycheck to be placed tax-free into your HSA account to be used for healthcare expenses. These funds roll-over to the next year if you do not use them by the end of the year.

FSA or Flexible Spending Account

This is money you can designate tax-free into a healthcare spending account up to $2,550 each year. You can use the funds for co-payments and out-of-pocket expenses for the year and if money is not used up by the end of the year, it does not roll over to the next year. You can however ask for a grace period or roll over up to $500, but you lose any other money contributed at the end of the year. This means you need to plan carefully how much money you will need for health expenses for the year.

Guidelines and Policies for Medical Reimbursement

The main rule for any medical reimbursement plan is that first the plan must come directly out of any money paid prior to taxes being taken out, and second the plan can only be used for medical expenses.

Benefits to Employers

1)      Reduced Insurance Premiums – Plans are usually offered when the company health insurance has a “high deductible.” This way an employer can save money on health insurance premiums and help employees pay for increased costs using tax-free money.

2)      Tax Deductions – If an employer “matches” what the employee contributes, that money is 100% tax deductible for the company.

Benefits to Employees

1)      Reduced Costs for Insurance – If you have a high deductible, these plans can be used to meet increased out-of-pocket expenses for healthcare.

2)      Money All Year for Health Expenses – You will have money at the beginning of the year to meet your deductible, pay co-payments, pay for medications, glasses, and dental costs. The only new rule with the Affordable Healthcare Act is over-the-counter meds need a prescription to be covered.

Healthcare Plan Designs

  • Deductible and Co-Pays
  • Deductible Only
  • Out-of-Pocket Expenses
  • Employer Specified Expenses (Prescription only, glasses/contacts only, dental only)

Getting Reimbursed Through the Plan

Any covered expenses under the plan, you will need to save all of your receipts, EOB’s for care from your insurance and medical bills to submit to the plan for reimbursement. You will also need to save them for tax proof of medical spending. You cannot “write-off” any medical expenses covered under a medical reimbursement plan because technically that money has already been given to you pre-tax dollars.

Using Two Plans

Your company can offer you two different types of spending accounts to increase coverage of out-of-pocket expenses. For instance; you may opt in for a “Flexible Spending Account,” which is your own pre-tax dollars for out-of-pocket expenses and add-in a separate account to cover your deductible and premiums.

You should be able to get a medical reimbursement form. Below is a sample:

http://www.dol.gov/owcp/dfec/regs/compliance/OWCP-915.pdf

Important Note about Medical Reimbursement and Affordable Care Act

New regulations state that Flexible Spending Account dollars cannot be used to pay for an “Individual Market Plan” premium. Section 105 of the Medical Reimbursement Plan Revenue Ruling 61-46 states that pre-tax contributions may not be used for “individual market plans” on the healthcare exchange. 

 
 
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