Q:

What is a medical reimbursement plan?

A:

Quick Answer

A medical reimbursement plan is an arrangement under which employers fund portions of their employees’ health plan deductibles, coinsurance, copays and other specified medical expenses on a tax-free basis. With such plans, employees normally pay for their individual health insurance premiums and medical expenses, and then the employer reimburses them.

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Full Answer

A medical reimbursement plan is a form of self-insurance. Employers can use such plans as a way to lower medical insurance costs but still cover employees’ qualified medical expenses tax-free. Health reimbursement plans are funded by the employer and cannot be funded through employees’ salary reductions. The employer decides the types of medical expenses to be covered by the plan.

Persons covered by a medical reimbursement plan may include current and former employees and their named spouses and dependents. The spouses and dependents of deceased employees can also be reimbursed under this plan. Medical reimbursement plans can be provided in combination with other employer-provided health benefits, such as flexible spending accounts.

Under a medical reimbursement plan, medical expenses are submitted using adequate claim substantiation. An employer only makes reimbursements for those expenses incurred during the coverage period. Any unused funds in a medical reimbursement plan are carried over to the next year and cannot follow the employee to new employment.

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