Since 1980, companies of all shapes and sizes have takenadvantage of insured executive medical reimbursement plans. Withthe passage of the Patient Protection and Affordable Care Act lastyear, prospects for the continued marketing of these plans lookedbleak at best, but isn’t it strange sometimes how quickly thingschange?

On Dec. 22, 2010, the Internal Revenue Service issued Notice2011-01 delaying the effective date of the new health care reform’srequirements that insured health plans meet the samenondiscrimination rules that apply to self-funded plans underSection 105(h). With the issuance of that notice, the doors havebeen opened again to begin marketing insured executive medicalreimbursement plans.

Even before this notice was issued, certain plans may have beenaccepted if they were provided under a separate policy, certificateor contract of insurance. Regulations specify that for coveragesupplemental to a group health plan to qualify as exceptedbenefits, the coverage must be specifically designed to fill gapsin primary coverage, such as coinsurance or deductibles.

Also, some plans have already removed any annual limit the planmight have and added coverage for dependents up to the age of 26.Insured executive medical reimbursement programs have been apopular benefit for high-income individuals for many years forthose employers who wished to provide extra health insurancebenefits to its executives.

Prior to 1980, most of these plans were self-insured, but theRevenue Act of 1978 established non-discrimination requirements forself-insured medical reimbursement under Section 105(h) of theInternal Revenue Code. As a result of this legislation, mostexecutive-only medical plans were discontinued or moved to aninsured basis as the non-discrimination rules did not apply toinsured plans.

The theory at the time was that lawmakers felt that theunderwriting requirements on these plans would limit any potentialabuses. Insurers over the years have recognized this need andresponded with insured medical reimbursement plans that allowcompanies to provide these tax advantaged plans to their keyexecutives. As with any other insured plan, employers can deductthis offering as a reasonable and ordinary cost of doingbusiness.

Benefits received by the recipients are typically received taxfree. Examples of expenses that can be submitted under an insuredmedical reimbursement plan include deductibles and coinsurance,dental care and orthodontia, annual physicals and preventive care,vision care (including eyeglasses and contact lenses), andtreatments for nervous/mental disorders as well as drug and alcoholabuse.

Generally, if an expense is medically necessary and qualifiesunder Section 213 of the Internal Revenue Code, it is eligible forreimbursement. To avoid a plan being viewed as self-insured, it isimportant to make certain that there is a policy of insurance inplace and that there is a shifting of risk from the employer to anunrelated third party, the insurer.

Remember, payments made to executives under a self-insuredarrangement are taxable, while claim payments made to coveredindividuals under an insured medical reimbursement program aregenerally tax free. Recruiting and retaining key individuals to anyorganization is a key element in keeping a companysuccessful. Installing an insured medical reimbursement planwill go a long way in finding and keeping those individuals contentand productive.

In fact, with the taxpayer only able to deduct unreimbursedmedical expenses in excess of 7.5 percent of gross income, it isimpractical for the high income earner or business owner to realizeany tax relief in this fashion. For most brokers, insured medicalreimbursement plans are a great door opener to the executivesuite.

Business owners already confronted by greater regulation andfewer tax breaks for key executives are looking for ways to keepthese key groups of employees engaged. Providing a resolution tothis problem will go a long way in providing additionalopportunities for the broker.

Dave Schwartz is President of The TSJ Group, a wholesaler ofinsurance related products including executive medicalreimbursement. He can be reached at [email protected]