The Evolution of the Modern Executive Medical Reimbursement Plan

A Look Back, A Look Forward

Health insurance in the form of medical reimbursement plans for CEOs and business owners have long been a staple in the business world. These programs have historically served two key purposes:

  • Tax-Efficiency: Offering tax-efficient solutions for covering personal healthcare expenses, allowing businesses to provide more coverage for key talent out-of-pocket healthcare expenses.*
  • Retention and Recruitment: Helping companies retain and attract mission-critical leadership.

This robust coverage was traditionally achieved through two main approaches:

  1. Top Hat Insurance Plans
    • Once popular among larger organizations, these plans were a hallmark of executive healthcare coverage.
    • Due to the Affordable Care Act (ACA) reforms, they were largely phased out and now exist primarily as grandfathered plans.
  2. Medical Expense Reimbursement Plans (sometimes referred to as MERPs)
    • A preferred solution for small and mid-market companies.
    • Many exited the market following ACA implementation, while those that remain are subject to new regulatory requirements.

Before the Affordable Care Act (ACA)

Health insurance for CEOs and business owners gained significant traction in the 1980s, largely due to
the IRS’s Revenue Act, which established nondiscrimination rules for self-insured reimbursements of healthcare expenses. This laid the groundwork for what we now refer to as Section 105(h) of the tax code.

At that time Top Hat Insurance Plans began to be phased out. Executive medical reimbursement plans, which some refer to as medical expense reimbursement plans or MERPs, started to be divided into two categories: self-funded (or cost-plus) arrangements or fully insured. The difference between the two is explained in this article.

The Modern Executive Health Insurance Plan: ExecuCare

Today, ExecuCare represents the evolution of health insurance for CEOs and business owners, combining the best features of both traditional plans. It operates on a fully insured, full-risk transfer model similar to Top Hat Insurance Plans, while also functioning as a supplemental health insurance plan or medical expense reimbursement insurance plan.

Key characteristics of this modern add-on coverage include:

  • Structure: Underwritten premium rates paid monthly by enrollment tier. Premium is the same regardless of the claims submitted.
  • Compliance: ExecuCare has a fully insured funding structure and complies with Section 105(h) of the Internal Revenue Code.*
  • Financial Liability: Fully insured premiums are a predictable fixed expense. Electronic monthly billing allows for financial predictability.
  • Timing: Claims are submitted directly to ExecuCare; members get reimbursed directly and quickly.
  • Client Administration: Administration is easy. HR team is removed from the work associated with claims processing so they can focus on other important responsibilities.
  • Claim Decisions: Claims payment is between ExecuCare and the member according to policy coverages.
  • Privacy: There is complete anonymity for executives.

Supporting the Healthcare Needs for the Business Owner Lifestyle

Unlike standard company health plans, which are designed for the general employee population, ExecuCare caters specifically to the unique needs of business owners, leaders and executives. These individuals often face demanding careers that require long hours, frequent travel, high levels of stress, and less sleep.

ExecuCare provides robust coverage designed to support the lifestyle of these high-performing leaders. It addresses not only their healthcare needs but also focuses on disease prevention and overall physical and emotional well-being, which are critical for maintaining peak performance in a fast-paced business environment.

Final Thoughts

As healthcare continues to evolve, the modern version of executive medical reimbursement, or so-called medical expense reimbursement plans (MERPs), exemplified by ExecuCare, stands as a versatile, efficient solution for today’s small businesses. It blends the best of past practices with the compliance and structure required in the present landscape, offering companies an essential tool for supporting leadership health and productivity.

*This is not local, state or federal tax advice as each person and each company is unique. It is recommended that you seek the independent counsel of a professional tax adviser.