Question

A company pays 60% of all healthcare expenses. Last year, $600,000 was paid in reimbursements.  What do you anticipate would happen if you were to increase healthcare coverage to 70% instead of 60%? Do you increase pay or offer a better insurance plan where 80% of all health expenses? What could you imagine to happen to your expenses if either option was followed?

Answer 1

Total Healthcare Expense	$ 1,000,000	$ 1,000,000	$ 1,000,000
Coverage	60%	70%	80%
Reimbursements	$    600,000	$    700,000	$    800,000

The company should offer a better insurance plan where 80% of all health expenses are reimbursed.

The company would save taxes on reimbursements as they are made pre-tax.

As a general rule, medical expense reimbursement is tax-advantaged if the employer uses a formal, compliant reimbursement plan. If the business is using a more casual arrangement, reimbursements are taxable and care should be taken not to offer an Employer Payment Plan.