Medical Reimbursement for Employees: Benefits and Best Practices

Medical reimbursement is a strategic approach by employers to offer financial assistance to employees for eligible medical expenses. In simple words, if an employee has had certain medical expenses, the employer will reimburse the amount up to a certain extent.

The employee health reimbursement arrangement can cover a wide array of health-related expenses, such as prescription medications, routine doctor visits, extensive medical procedures and more. By covering employees' medical expenses, employers contribute to the overall welfare of their workforce.

Medical reimbursement policies for employees are classified into two types, which are mentioned below:

-Health Reimbursement Arrangements

Employee health reimbursement arrangements are employer-funded accounts that employees can use to cover their eligible medical expenses. Under health reimbursement arrangements, the employer sets the contribution limit for employees. The unused fund of the health reimbursement arrangements gets rolled into next year, which offers flexibility to employees.

-Flexible Spending Accounts

Another type of medical reimbursement policy for employees is flexible spending accounts, which allow employees to set aside pre-funded money to cover medical expenses. These generally come with a “use it or lose it” provision, which means the funds set aside for a year must be used within a year. The unspent fund under this may be forfeited, which gives employees a chance to plan their healthcare spending carefully.

Employers have guidelines for employees who are eligible for medical reimbursement. If the employee passes these guidelines, they can initiate the reimbursement process. Here is a step-by-step guide to reimbursing employees for medical expenses:

-Step 1: Gather All the Required Medical Documents

The very first step employees need to follow is to collect all the required medical expense documents such as prescription bills, hospitalisation expenses, doctor consultation bills and more.

-Step 2: Submit the Documents to Employer

After collecting all the documents, employees need to submit all the documents to employers in the requested format to initiate the reimbursement process.

-Step 3: Verify the Documents

Once the requested documents have been submitted, the employer will verify them to check whether the reimbursement request meets the eligibility criteria and ensure that the medical expenses align with the plan's terms and conditions.

-Step 4: Wait for Approval

Once the employer has verified the documents and claim form, they will either approve or reject the claim request. If the request has been approved, the employee will receive a confirmation email.

-Step 5: Reimbursement of Funds

Once the claim request has been approved, the process of reimbursing the funds will be initiated. The employee will get the reimbursement amount in their account within a few days.

As per the Income Tax Act of 1961, reimbursing employees for medical expenses is placed in the standard tax deduction. This means that if the medical expenses are up to ₹15,000, then they are tax-exempt. If the reimbursement amount for medical expenses is more than ₹15,000, then it will be taxable under the “Income from Salaries” option.

Let us understand in detail the implication of tax on medical reimbursement for employees by using an example. Rahul is an employee working at ABC, which offers a medical expense reimbursement benefit.

During his job tenure, Rahul underwent medical treatment for a certain illness. The expense for the treatment amounts to ₹25,000, which Rahul paid out of his pocket. Since Rahul is aware of reimbursing employees for medical expenses benefits, he decided to file a claim.

After verifying the document, the employer reimbursed Rahul ₹25,000. However, as per the Income Tax Act, only the ₹15,000 is tax-exempt. This means that Rahul needs to pay a tax on the remaining ₹10,000.

The excess ₹10,000 will be added to Rahul's salary income and taxed at the applicable tax slab rate. Let us say Rahul's income falls at a 20% tax slab rate; then he needs to pay ₹2,000 tax on the remaining ₹10,000.

Note: The medical expense tax deduction benefit is included in the standard deduction of ₹50,000 under the Income Tax Act of 1961, effective from financial year 2018-19 onwards.

Implementing a medical reimbursement policy for employees is a great way to support their health and well-being, but to ensure that it is effective, compliant and efficient, organisations should follow several best practices.

-Define the Policy

The very first step organisations need to take is to define the eligibility criteria and conditions for medical reimbursement for employees. The policy should specify what expenses it covers, such as doctor visits and prescriptions and the amount covered under the policy.

-Create Claim Process

The claim process for the medical expenses reimbursement policy should be straightforward. If it is too complex, employees will hesitate to use it. Create a simple process that anyone can use without any difficulty.

-Set Claim Deadlines

Another crucial aspect employers need to decide is whether to set deadlines for claim filing. This is crucial to avoid late claim filings or fraudulent claim requests. By setting timelines, employers will have enough time to verify the claim request.

-Timely Review and Approve Claims

Another best practice employers need to adopt while reimbursing employees for medical expenses is timely review and approval of claims. If the claim request takes a lot of time, it can be frustrating for the employee. Therefore, the employer should have dedicated people to expedite the whole process, showing respect and value for the employee's time.

-Educate About Tax Compliance

Another thing employers need to pay attention to is educating their workforce about the tax implications of medical reimbursement. Making employees aware of the tax rules around medical reimbursements will help them avoid surprises during tax filing.

Medical expense reimbursement is a great option for organisations, but it is more expensive and time-consuming. To reduce the cost and time, employers can invest in a group medical insurance policy for their employees. Below are some of the crucial benefits of buying group health insurance compared to medical expense reimbursement.

-Time Saving Option

The very first benefit of investing in a group health insurance plan is its time-saving option for companies. In medical expense reimbursement, all the claim resources are handled by the company itself, which makes the process resource- and time-consuming.

However, in the group medical insurance policy, the burden will be transferred to the insurance provider, saving the company crucial resources and time.

-Cost Saving

With medical reimbursement, companies face various administrative costs to process claims, verify receipts and ensure compliance. However, with group health insurance, the burden of administration is shifted to the insurer, allowing the company to streamline operations and reduce administrative costs.

Moreover, employers can take advantage of tax exemptions on the premiums they pay for group health insurance on behalf of their employees, making it a cost-effective investment.

-Comprehensive Coverage

In medical expense reimbursement, employees have to bear the upfront medical costs and then submit receipts for reimbursement, which may limit their access to healthcare services if they face liquidity constraints.

However, under a group health insurance plan, they get access to comprehensive medical coverage. They also benefit from cashless hospitalisation, which eliminates the need for reimbursement processing.

Organisations are constantly looking for ways to keep their employees happy and engaged. One effective strategy is prioritising their health and well-being. By offering a medical reimbursement policy, employers can reimburse certain medical expenses incurred by their workforce.

This is a great way for employers to demonstrate that they truly care about their employees. In addition to this, various business insurances in India are available that can really help organisations. For example, by employing group health insurance policies, employers can offer standardised medical coverage to their workforce.

TATA AIG offers corporate health insurance tailored to meet your unique business needs. Our plans offer comprehensive coverage to employees, including daycare, in-patient treatment and much more. Secure your employees' health now with our customisable group health insurance plan.

Is the medical reimbursement policy for employees applicable in India?

Yes, the medical reimbursement policy for employees is applicable in India. Employers can reimburse employees for medical expenses incurred, provided the expenses are genuine and supported by valid receipts.

Can medical expenses reimbursement be part of salary?

Yes, medical expense reimbursement can be part of an employee's salary, but if included as a fixed allowance, it may be taxable.

Can employers reimburse employees for health insurance premiums?

It may vary from organisation to organisation depending on their company's policies and employee size. Generally, employers can reimburse employees for health insurance premiums.

If the reimbursement is for a Group Health Insurance Policy, it is typically tax-free for employees. However, if the reimbursement is for an individual health insurance policy, it may be taxable.