Medicare Premium Reimbursement Arrangements: A Smart Strategy for Small Employers

The Challenge for Small Employers

As health insurance premiums rise, small employers are under pressure to balance cost control with employee satisfaction. For businesses with fewer than 20 employees, a Medicare Premium Reimbursement Arrangement (MPRA) can offer a unique solution — one that reduces costs, enhances benefits, and rewards long-term employees.

What Is a Medicare Premium Reimbursement Arrangement (MPRA)?

An MPRA allows employers to pay or reimburse Medicare-eligible employees for their Part B, Part D, and Medigap premiums on a tax-free basis. It’s a simple, compliant way to move older employees from the group plan to Medicare — without reducing their coverage or benefits.

Why Employers Should Consider MPRAs

Older employees often drive up the average age of a small group, which increases overall premiums. Transitioning even one 65+ employee to Medicare can significantly reduce the group’s renewal rates.

Meanwhile, employees often benefit from:

• Greater provider flexibility – no network restrictions or referral requirements
• Lower out-of-pocket costs – most medical expenses are covered after a small Part B deductible
• Comparable or lower total premiums – especially when employers contribute to the cost

IRS Guidance and Compliance

According to IRS Notice 2015-17, employers can reimburse Medicare premiums if specific conditions are met.

The reimbursement arrangement must:

1. Be offered alongside a group health plan that provides minimum value.
2. Be limited to employees enrolled in Medicare Parts A and B (and/or D).
3. Only reimburse for eligible premiums — Part B, Part D, and Medigap.
4. Comply with ERISA documentation and substantiation rules.

Because MPRAs are still considered group health plans, employers should partner with a third-party administrator (TPA) experienced in compliance and recordkeeping.

Important Note: Employer Size Matters

The Medicare Secondary Payer (MSP) rule only allows MPRAs when Medicare is the primary payer. This means MPRAs are best suited for employers with fewer than 20 employees.

A Win-Win-Win Solution

When implemented correctly, MPRAs benefit everyone involved:

• Employees: Expanded provider access and lower out-of-pocket costs
• Employers: Lower total premiums and predictable reimbursements
• Other Staff: Reduced group rates due to lower average age

It’s one of those rare health benefit strategies that truly benefits all sides.

Case Study: Real-World Savings

A small business with eight employees faced rising premiums, paying $900 per month to cover a 65-year-old employee.

By setting up an MPRA and reimbursing up to $400 monthly for Medicare premiums, the employer saved $550 per month — and the employee enjoyed better coverage.

Five years later, three employees now use the MPRA, saving the company over $3,000 every month — while maintaining 100% employer-paid coverage for everyone else on the plan.

This approach helped the employer manage costs, reward loyalty, and sustain a generous benefits package for the entire team.

The Takeaway

Medicare Premium Reimbursement Arrangements give small employers a compliant, cost-effective way to retain valued employees and sustain rich benefits.

With proper documentation and TPA support, MPRAs can help small businesses control rising costs — without compromising the quality of employee coverage.

Can an MPRA save you money? Contact Zinn today and we can talk!