Week 8: Medicare Premium Reimbursement Arrangements

As small group health insurance premiums continue to climb, employers are looking for creative ways to control costs without sacrificing benefits for their workers. One lesser-known but perfectly legal option for businesses with fewer than 20 employees is the Medicare Premium Reimbursement Arrangement (MPRA) — a strategy that allows employers to pay or reimburse Medicare-eligible employees for their Part B, Part D, and Medigap premiums.

While most brokers have heard of HRAs, QSEHRAs, and ICHRAs, few are familiar with this simple but powerful tool. Yet MPRAs can reduce costs for employers, improve coverage for older employees, and even lower group premiums for everyone else. Here’s how they work.

In small groups, age is one of the biggest cost drivers. A single 65-year-old employee can significantly increase the average age of the group and push premiums higher for everyone. For example, removing one older worker from a 10-person group could reduce the group’s average age by several years — resulting in lower rates at the next renewal.

At the same time, that employee might prefer Medicare plus a supplement anyway. Medicare paired with a Medigap plan typically offers:

• More provider choice — no network restrictions, referrals, or PCP requirements.
• Lower out-of-pocket costs — most medical expenses are fully covered after a small Part B deductible.
• Comparable or lower premiums — especially when the employer contributes to the cost.

The only challenge has been finding a compliant way for the employer to help pay those premiums. Fortunately, the IRS gave us a roadmap in Notice 2015-17, and the preamble to the final ICHRA regulations repeats the Medicare-premium discussion (Final ICHRA Rule).

In 2015, the IRS confirmed that employers can reimburse Medicare premiums under certain conditions. Technically, this is an Employer Payment Plan (EPP) — not an HRA — though it functions similarly by allowing the employer to pay or reimburse qualified premiums on a tax-free basis.

From IRS Notice 2015-17, Q&A 3:

Medicare premium reimbursement arrangements. An arrangement under which an employer reimburses (or pays directly) some or all of Medicare Part B or Part D premiums for employees constitutes an employer payment plan, as described in Notice 2013-54, and if such an arrangement covers two or more active employees, is a group health plan subject to the market reforms. An employer payment plan may not be integrated with Medicare coverage to satisfy the market reforms because Medicare coverage is not a group health plan. However, an employer payment plan that pays for or reimburses Medicare Part B or Part D premiums is integrated with another group health plan offered by the employer for purposes of the annual dollar limit prohibition and the preventive services requirements if (1) the employer offers a group health plan(other than the employer payment plan) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value; (2) the employee participating in the employer payment plan is actually enrolled in Medicare Parts A and B; (3) the employer payment plan is available only to employees who are enrolled in Medicare Part A and Part B or Part D; and (4) the employer payment plan is limited to reimbursement of Medicare Part B or Part D premiums and excepted benefits, including Medigap premiums. Note that to the extent such an arrangement is available to active employees, it may be subject to restrictions under other laws such as the Medicare secondary payer provisions. An employer payment plan that has fewer than two participants who are current employees (for example, a retiree-only plan) on the first day of the plan year is not subject to the market reforms and, therefore, integration is not necessary to satisfy the market reforms.

To offer a Medicare Premium Reimbursement Arrangement, the employer must offer a group health plan (other than the reimbursement arrangement) that provides minimum value. Second, the employees participating in the MPRA must actually be enrolled in Medicare Parts A and B (and/or D). Third, the reimbursement program can only be offered to employees who are Medicare-eligible and enrolled. And finally, the reimbursement must be limited to Medicare Part B, Part D, and excepted benefits such as Medigap.

When they first learn about Medicare Premium Reimbursement Arrangements, many employers and advisors really like the idea, but they want to make sure it’s legal. Here are a few sources to confirm that it is.

• IRS Notice 2015-17 (Q&A 3): permits Medicare Part B/D premium reimbursement via an employer payment plan when integrated with a minimum-value group plan.
• Final ICHRA Rule (preamble): repeats the Medicare premium reimbursement discussion.
• SHRM summary: confirms the same conditions and notes the integration requirement.
• Buck Consultants/Xerox: describes these as employer payment plans; compliant if integrated with another group plan offering minimum value.
• UBA Chief Compliance Officer: reiterates compliance path and penalties if not integrated.
• Alston & Bird: confirms permissibility but warns of MSP restrictions for larger employers.
• PwC: reaches the same conclusions.

There’s one critical limitation: MPRAs only work when Medicare is primary. Under the Medicare Secondary Payer (MSP) rules, employers with 20 or more employees cannot incentivize active workers to enroll in Medicare instead of the group plan (Alston & Bird; SHRM). For groups under 20, Medicare is primary and the MPRA strategy can be used.

Even though a Medicare Premium Reimbursement Arrangement (MPRA) is simpler than a traditional HRA, it is still a group health plan and must meet ERISA’s documentation and substantiation requirements. That means having a compliant plan document, summary materials, and a clear process for verifying reimbursements. Many third-party administrators (TPAs) don’t offer this type of service, but a few specialize in it.

This is one of those rare situations in health insurance where everyone comes out ahead. A Medicare PRA truly is a win-win-win:

• Employee: broader provider choice, lower out-of-pocket costs, predictable premiums.
• Employer: often lower cost than covering a 65+ employee on the group plan.
• Other employees: removing a 65+ employee can reduce average age and improve renewal premiums.

Did we mention the tax benefits?

• Employer reimbursements are generally deductible as a business expense.
• Employee reimbursements for eligible Medicare premiums are generally excludable from income.

One small business (a client of Eric’s) with just eight full-time employees was struggling with rising health plan costs. The employer paid 100% of the premium for the most expensive HMO plan offered — and for one employee who had just turned 65, that coverage cost more than $900 per month.

After learning about Medicare Premium Reimbursement Arrangements (MPRAs), the employer set one up and offered up to $400 per month to reimburse that employee for Medicare Part B, Part D, and Medigap premiums. The employee’s total cost came to about $350, which meant the employer was saving roughly $550 per month — and the employee ended up with broader coverage and lower out-of-pocket costs.

In the 5+ years the employer has offered the MPRA, the business has saved well over $30,000!

And in 2025, two more employees turned 65 and chose to participate in the MPRA as well.

Fast forward to January 1, 2026: that same HMO plan (the one the employer pays 100% of) now costs $1,452 per month for a 65-year-old. By reimbursing three employees through the MPRA instead of keeping them on the group plan, the employer is saving more than $3,000 every month — a huge win for a company of just eight people.

Those savings have helped the employer maintain a <strong>100% contribution for everyone else</strong> on the group plan — a level of generosity that might not have been sustainable without the MPRA. In other words, this strategy allowed the employer to control costs, reward loyalty, and preserve rich benefits for the entire team.