Medicare Premium Reimbursement Arrangement (MPRA)

An employer-funded health plan that reimburses Medicare-primary employees or retirees for Medicare premiums, and optionally Medigap, on a tax-free basis under a written plan that respects Medicare Secondary Payer rules.

See the Step-by-Step ProcessView Templates & Resources
What Employer reimburses Medicare premiums (e.g., Part B, Part D, Medicare Advantage) and optionally Medigap, on a tax-free basis under a written health plan.
Who Typically small employers where Medicare is primary (often fewer than 20 employees) and for Medicare-eligible employees or retirees. Design must respect Medicare Secondary Payer (MSP) rules.
When Adopt the plan before the plan year begins; enroll eligible employees at hire/eligibility or during annual enrollment.
Risk If the arrangement discriminates in favor of highly compensated individuals, those discriminatory amounts become taxable income to the HCIs under IRC Section 105(h). If the design violates ACA market reform rules (e.g., covering active employees without meeting integration requirements), the Section 4980D excise tax applies: $100 per day per affected individual. Getting the plan document wrong is the most common source of both exposures.
Before
Plan year start

Adopt or refresh the MPRA plan document and SPD (and SBC if applicable).

At hire
Enrollment

Enroll at hire/eligibility and annually; coordinate with Medicare enrollment windows.

Annual
105(h) testing

Confirm benefits don't favor highly compensated individuals before year-end.

Trigger Due Date / Window Notes
Adopt/refresh MPRA plan document + SPD (and SBC if applicable) Before plan year Put eligibility, reimbursable premiums, caps, and substantiation rules in writing.
Enrollment/elections At hire/eligibility and annually Coordinate with Medicare enrollment windows for smooth onboarding.
Nondiscrimination testing (Section 105(h)) Annually (before year-end) Confirm benefits don't favor highly compensated individuals.
Trigger: Adopt/refresh plan document + SPD (and SBC if applicable)
Window: Before plan year
Notes: Put eligibility, reimbursable premiums, caps, and substantiation rules in writing.
Trigger: Enrollment/elections
Window: At hire/eligibility and annually
Notes: Coordinate with Medicare enrollment windows for smooth onboarding.
Trigger: Nondiscrimination testing (Section 105(h))
Window: Annually (before year-end)
Notes: Confirm benefits don't favor highly compensated individuals.
  • MPRA Plan Document (or HRA plan document tailored to Medicare premiums): eligibility, reimbursable premium types, monthly caps, run-out, substantiation rules, COBRA applicability.
  • SPD (or Wrap SPD inclusion) and SBC if your design requires it; distribution proof.
  • Election/acknowledgment forms and proof of Medicare enrollment (e.g., Part B card).
  • Substantiation records (premium statements, SSA deductions, carrier invoices, bank/Social Security benefit statements).
  • Testing dataset for Section 105(h) (eligible/enrolled participants, benefit levels, highly compensated individual status).
1
Draft and adopt the plan documentDescribe which premiums are reimbursable (Part B, Part D/MA, Medigap if desired), monthly caps, and claims rules.
2
Set up substantiationUpload premium notice, SSA benefit statement, or carrier invoice. Approvals are binary and quick: either the premium is documented or it isn't.
3
Coordinate payroll or APFor tax-free reimbursements and a monthly cadence (in arrears is common).
4
Distribute the SPD (and SBC if applicable)And enrollment instructions; collect elections and acknowledgments.
5
Run annual Section 105(h) testingAdjust caps or eligibility prospectively if needed.
  • Eligible premiums: Define clearly in the plan document (e.g., Part B, Part D, or Medicare Advantage; optionally Medigap). Do not reimburse non-premium expenses unless the plan expressly allows it.
  • Payment method: Typically the employee pays the premium and is reimbursed monthly; require proof of payment each cycle.
  • Tax treatment: Properly designed MPRA reimbursements are generally tax-free to the employee under IRC Sections 105 and 106.
  • No pressure to enroll: Communications must not suggest that employees are required to elect Medicare coverage. Follow MSP rules; offering an MPRA to active employees in a way that steers them toward Medicare can trigger MSP violations.
  • Plan document, SPD (and SBC if applicable), and amendmentsKeep all versions plus distribution proof.
  • Election and acknowledgment formsMedicare enrollment proof on file for each participant.
  • Monthly substantiation recordsPremium notices, SSA deduction confirmations, and reimbursement logs.
  • Annual Section 105(h) test filesAnd any corrective actions taken.

Is substantiation hard?

No. Premium statements and SSA benefit statements are usually sufficient. Set a simple monthly checklist and it becomes routine.

Do we need an SBC?

Many designs do include an SBC. If your MPRA is integrated with other coverage, coordinate disclosures so participants understand what is and isn't covered by each piece.

Can larger employers use this?

Designs must comply with MSP and ACA rules, which get more complicated as employer size increases. For some employers or employee classes, an ICHRA may be the compliant path to reimburse Medicare premiums. Get professional guidance before offering an MPRA to active employees at a larger organization.

Can employees enrolled in Medicare still contribute to an HSA?

No. Employees enrolled in any part of Medicare are ineligible to make new HSA contributions. They may still use funds already in their HSA.

What happens if the plan fails Section 105(h) testing?

Discriminatory amounts, the excess benefits provided to highly compensated individuals, are included in those individuals' gross income and become taxable. Adjust caps or eligibility prospectively before year-end to avoid the problem.

  • Retiree-only MPRAs: Different MSP dynamics apply once employees are no longer active. Coordinate with any retiree medical plan and confirm how the arrangement interacts with Medicare primary/secondary status.
  • Mixed workforce (fewer than 20 and 20 or more employees): MSP status may differ by controlled group. Confirm headcount rules before communicating the arrangement to employees.
  • Union or contract groups: Check collective bargaining agreements and any MEWA coordination terms before offering or modifying the MPRA.

Most employers handle reimbursements themselves, but the plan document side benefits from a TPA. Here's what to outsource and what you can manage on your own.

Where a TPA helps: Drafting and maintaining the plan document, SPD, Wrap, and SBC (if required) is where most employers run into trouble. A TPA that specializes in HRA/MPRA documents can get you set up correctly and update the document when rules change. This is a one-time cost that's worth it.

What you can handle yourself: Once the plan is in place, day-to-day reimbursements are straightforward. Collect the right documentation once per year (or when coverage changes), reimburse on a set monthly schedule, and keep a simple log. The table below shows exactly what to collect and when.

Substantiation reference, what to collect and keep:

Document When to Collect What It Verifies
Social Security benefit statement or SSA letter showing Part B premium deduction Annually (January, when SSA mails benefit statements) or when Part B premium changes Confirms the Part B premium amount being deducted from the employee's Social Security benefit
Medicare Advantage or Part D premium invoice or carrier statement Annually or when coverage changes; keep monthly invoices if amount varies Confirms the MA or Part D premium amount owed to the carrier
Medigap (Medicare Supplement) premium invoice or carrier statement Annually or when coverage changes; keep monthly invoices if amount varies Confirms the Medigap premium amount; only reimbursable if your plan document includes Medigap
Medicare enrollment confirmation (Medicare card copy or SSA letter) Once, at enrollment into the MPRA Confirms the employee is enrolled in the Medicare parts your plan covers
Monthly reimbursement log (employee name, coverage period, premium type, amount claimed, amount reimbursed, date paid) Every month Your audit trail; shows each reimbursement was within the plan's monthly cap and supported by documentation

Practical tip: Set a recurring monthly date (e.g., the 1st of each month) to process reimbursements. Employees submit their documentation once per year when premiums are set, and you pay out the same amount each month until something changes. If a premium changes mid-year, collect an updated statement and note it in the log.