Medical Expense Reimbursement Plans

Alot of confusion exists regarding the implementation of ObamaCare. Confusion  seems to be at every level. The federal govenment has delayed the implementation for a year but not the individual mandate. First it was the employer mandate and now it is a delay on rules dealing with out-of-pocket expenses. The Government is missing virtually all of its deadlines. It is not hard to understand. With a manjor league scandal in the IRS that won’t go away, Benghazi-gate still out there (thanks to Fox News) and another war brewing, along with a stagnant economy, it would be hard for anyone to keep an ey on the ball for a law that no one likes.

One thing is for sure, small and large businesses are expecting the worst when it comes to Obamacare in terms of the law’s impact on premiums. Virtually every forecast from benefit consulting groups is predicting large increases in premiums. The range of increase is 35-75 percent depending on where you live. A family with an income under $94,000 per year that qualifies for the Silver Plan under the Affordable Care Act would pay almost $9,000 per year.

Employers with under 30 employees don’t need to provide coverage under ObamaCare. On one hand that is good, but on the other hand, a business needs to hold on to its good employees. Yes, it is good to just have a job in a bad economy but you still need good employees and they need health insurance. What to do?

A medical expense reimbursement plan is authorized IRC Sec 105(b) reimburses employees for qualifying medical expenses. The reimbursements are not taxable to employees and not subject to employment tax withholding. The reimbursements are deductible to the business. Pretty good, right?

The business needs to include all of its employees except the following:

(3) Those who work less than 35 hours per week.

(4)  Those who work less than nine months per year

(5)   Those under age 25

(6) Those who have worked for employer for less than three years

The primary goal of the plan is to reduce the cost of healthcare costs of the business, i.e. premiums for health insurance. The business adopts a medical reimbursement plan and adopts a plan with a much higher deductible with employer reimbursements for routine care. Coverage may be provided by the employer or employees may own their own policies. In most cases, the business can use the same network of providers. Small businesses with 10-30 employess can save $30,00 – 40,000 per year.

In order for the business owner to participate the business needs to be a C corporation. That means the business operating as a LLC or S Corporation needs to create a C corporation subsidiary that provides services to the operating company as part of the business. This is a small cost for restructuring.

The Law Firm of Gerald R. Nowotny is focused on helping business owners establich medical expense reimbursement plans to cost the exorbitant projected costs of Obamacare. Premiums are already going up. Call me today!

About gerrynowotny

I am a tax and estate planning attorney with a JD and LL.M in estate planning from the Univesity of Miami School of Law. I have worked in the life insurance industry for twenty three years and the last eleven in private placement life insurance.
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5 Responses to Medical Expense Reimbursement Plans

  1. Val Ebberson says:

    Appreciate your article (found thru Google search on this topic). Can you provide the IRS documentation (link) stating that a business must be a C-Corp to have a medical reimbursement plan? Also, another article I read elsewhere implied that a stand-alone medical reimbursement plan with a cap (i.e. $3000) may not be allowed if not accompanied by a health insurance policy without lifetime max (which is what I believe ObamaCare requires beginning in 2014). Do you know if that is true?

    • gerrynowotny says:

      Val – No cap on the medical reimbursement plan. A more than 2 percent shareholder or partner in partnership or member of a LLC (taxed as a partnership) does not treat the shareholder or partner as an employee. Employing the spouse as an employee could also be a fix to the problem and the shareholder is covered under the spouse’s benefits under the MERP. Let me know if I can help. This is a great solution with Obamacare for small business owners.

      Gerry

  2. Lisa says:

    Val’s question “Can you provide the IRS documentation (link) stating that a business must be a C-Corp to have a medical reimbursement plan?” is mine as well.

    • gerrynowotny says:

      This is not quite the point. A more than a 2 percent shareholder, partner or member in a LLC is not treated as an employee, hence the need for a c corporation. This is not really a big deal cost-wise etc to accomplish. A sole proprietor can hire the spouse and pick up the benefit this way through the wife.

      Need more?

  3. CJ Becker says:

    Can you have wife(an employee) buy family coverage under obama care and medical reimbursement plan, if the medical reimbursement plan has no anual limit. Does this meet all qualifications.

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