What is a Premium Reimbursement Account (PRM)?
In the context of an Individual Coverage Health Reimbursement Arrangement (ICHRA), a PRM enables employees to contribute their own pre-tax dollars toward individual health insurance premiums in addition to employer-provided ICHRA funds.
Together, employees can utilize these two funding sources to cover the full cost of their monthly health insurance premiums while maintaining tax advantages for both the employee and the employer.
Why Use a PRM with ICHRA?
While ICHRAs allow employers to reimburse employees tax-free for qualified individual health insurance premiums, the employer’s allowance might not cover the total premium amount. That’s where the PRM comes in.
A PRM allows employees to voluntarily contribute pre-tax dollars (via payroll deductions) to make up the difference. This additional pre-tax contribution ensures employees can fully pay premiums without needing to dip into after-tax income.
How PRM and ICHRA work together:
- The employer offers an ICHRA and defines a monthly allowance.
- The employee selects an individual health plan through a supported platform marketplace.
- The employee elects to contribute pre-tax funds to cover the remaining premium via payroll deductions through the PRM.
- The premium is fully paid using a combination of employer and employee contributions.
Example: An employee’s monthly premium is $650. Based on their ICHRA class, the employee is allotted $500 a month from their ICHRA. The employee could contribute $150 of pre-tax contributions to a PRM account to cover the full cost of their monthly premium. Without the PRM, the $150 balance would have to be paid by the employee post-tax.
Important Compliance Considerations:
- A Section 125 Cafeteria Plan (POP Plan) must be in place to allow pre-tax deductions when utilizing a PRM plan.
- PRMs can only be used for individual major medical premiums, not sharing ministries or supplemental plans.
- Employees cannot use PRM contributions in months they receive a premium tax credit unless ICHRA is considered unaffordable.
