Employers are continuously looking for ways to save money on their employee health care benefit expenses while maintaining or increasing benefit levels to allow them to attract high quality employees. Consumer directed plans are a good way for many companies to do this. These plans include medical reimbursement plans, which are more commonly known as health care reimbursement plans.
Background
A health care reimbursement plan must be funded completely by the employer. These plans reimburse the employee up to a certain amount of money per year for health care related expenses from this account. An employer may offer you a health care reimbursement plan in addition to other types of health care benefits, including a flexible spending account. Employers can also offer a health care reimbursement account to employees in conjunction with a high deductible health plan, which can lower the amount of money that an employee needs to pay out of pocket for health care.
Tax Status
Money paid to you for qualified health care expenses from a health care reimbursement account are exempt from federal and state income taxes. These do not have to be reported as income. There are many health care expenses that qualify, including dental and vision care benefits. Non-traditional expenses such as a chiropractor and acupuncture are eligible to be paid from health care reimbursement accounts without any tax liability.
How You are Reimbursed
You can be reimbursed for expenses after you have incurred them. With many plans, you must send a copy of the receipt to the plan administrator with a completed claim form and they will send you a check. Sometimes you can submit an insurance company's explanation of benefits form to show that you have incurred an expense, and they will reimburse you based on that. You could receive this payment before you receive the bill from the provider and then pay the bill directly. Some plans also allow you to use a debit card to make payments, making it unnecessary to submit forms for reimbursement.
End of Year Balances
Unlike a flexible spending account, where you have to use the complete balance of the account by the end of the year, you can carry forward any balance that remains in a health care reimbursement account. Your plan trustee can not distribute the money directly to you, but leftover money can be used to pay for health care related expenses in the future.
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