Step-by-Step Reimbursement Claims: Approval & Payment (2026)

Managing an Individual Coverage HRA (ICHRA) means handling a steady flow of employee reimbursement claims. From verifying insurance premiums to approving medical expenses, a disorganized process can quickly become a compliance headache. Getting it right protects your company and ensures your team gets the full value of their health benefit.

This step by step guide to approving and paying employee reimbursement claims walks through everything from setting up the plan to processing payments and handling year end reporting, giving you the confidence to manage your ICHRA effectively.

Setting Up Your Plan for Success

A smooth reimbursement process begins long before the first claim is submitted. It starts with a well designed plan and clear financial tracking.

Allowance Limit Setting and Tracking

With an ICHRA, you as the employer decide how much tax free money to offer employees for their health expenses (essentially, their ICHRA allowances).

• No Federal Caps: Unlike some other HRAs, the ICHRA has no statutory cap on allowance amounts. You set the limit based on your budget and benefits strategy.
• Class Based Design: You must offer the ICHRA on the same terms to all employees within a specific employee class (e.g., full time, part time, salaried). However, you can offer different allowance amounts to different classes.
• Permitted Variations: Within a class, you can vary allowances based on an employee's age or the number of dependents they have, but strict rules apply. For instance, the allowance for the oldest employee in a class generally cannot be more than three times that of the youngest.

Properly tracking these allowances is key. You need a clear view of how much was offered, how much an employee has used, and what remains for the plan year. Platforms like SimplyHRA can automate the configuration of class based allowances and provide live ledgers for audit ready tracking.

Notional Ledger Reconciliation

ICHRAs are typically unfunded benefits, meaning you pay claims from your company's general assets as they are approved. You aren't setting money aside in a separate bank account for each employee.

Instead, the system works using a "notional" or bookkeeping ledger. This ledger tracks the credits (allowances) and debits (reimbursements) for each employee. Reconciling this ledger ensures your records of promised benefits and actual cash payments always match your plan documents. It's a critical internal control for financial accuracy.

The Employee Experience: How to Submit a Claim

For your team, the process starts when they have an expense to submit. Making this workflow intuitive is essential for a positive benefits experience.

Completing the Reimbursement Request Form

Whether digital or on paper, a complete reimbursement request form is the first step. It should clearly ask for essential information, including the employee's name, the date the service was received or the premium was paid, the type of expense, the provider's name, and the total amount.

Choosing a Submission Method

Flexibility in how employees can submit claims improves the experience. Common methods include:

• Online Portal: A secure web portal where employees can fill out a form and upload digital copies of their documents.
• Mobile App: An increasingly popular option that allows employees to snap a picture of a receipt and submit a claim directly from their phone.
• Email or Secure Upload: A dedicated email address or secure file link for submitting scanned documents.

Gathering Required Documentation

To approve a claim, you need proof. For an ICHRA, employees must provide documentation to substantiate both the expense and their insurance status.

• For Medical Services: An itemized receipt, an invoice from the provider, or an Explanation of Benefits (EOB) from their insurance company will usually suffice. This document must show the date of service, a description of the service or product, the provider's name, and the amount.
• For Premium Reimbursements: Required documents can include an insurance ID card, a premium invoice from the carrier, or proof of payment.
• Proof of Coverage: A crucial step for ICHRA compliance is confirming the employee had qualifying health insurance, also known as Minimum Essential Coverage (MEC), for the month the expense was incurred. A signed employee attestation is often sufficient for this requirement.

Tracking Claim Status

After submission, employees should have a clear way to track the status of their reimbursement. A benefits portal or platform can provide real time updates, showing whether a claim is pending review, approved, paid, or if it has been denied and requires further action. This transparency reduces anxiety and minimizes follow up questions to your HR or finance team.

The Administrator's Workflow: A Step by Step Guide to Approving and Paying Employee Reimbursement Claims

Once an employee submits a claim, the administrative process kicks in. This section covers the core workflow where compliance with IRS and ERISA rules is paramount.

Step 1: Initial Review and Triage

The first step is a quick initial review, often handled by an HR or finance team member. This check ensures the submission is complete, the request form is filled out correctly, and all necessary documents are attached and legible. This is also the point where the claim can be routed to a designated final approver if your process requires it.

Step 2: Claim Substantiation and Verification

Before you can approve anything, you must substantiate the claim. This means you have a duty to verify two key things:

1. The expense is an IRS qualified medical expense under Section 213(d).
2. For ICHRA, the employee had active individual health insurance (MEC) for the month the expense occurred.

IRS rules require independent, third party verification for the expense. An employee simply stating they paid for something isn't enough. You need the receipt or EOB. For coverage, you can rely on an employee's signed attestation unless you have knowledge to the contrary.

Step 3: Final Approval and Processing

With documentation verified, the next step is the official review and approval. ERISA sets specific timelines for making a decision on a claim. For group health plans like an ICHRA, you must issue a determination on post service claims within 30 days of receipt. This can be extended by 15 days if necessary, but you must notify the employee.

Step 4: Handling Denied Claims and Appeals

If you deny a claim, you can't just say no. ERISA requires that a denial notice (also called an adverse benefit determination) includes specific information, such as the exact reason for the denial and the plan provisions on which the decision was based. Common reasons for denial include:

• The expense is not a qualified medical expense.
• Documentation is missing, incomplete, or illegible.
• The expense was incurred before the employee's coverage was effective.
• The employee has already reached their allowance limit for the plan year.

The notice must also describe any additional information needed to approve the claim and explain the plan's appeal procedures. Employees must be given at least 180 days to appeal the decision. The appeal must be handled by someone who was not involved in the initial denial, ensuring a full and fair review.

Managing Payments, Payroll, and Reporting

After a claim is approved, the final step is getting the money to the employee. A streamlined payment and reporting system keeps your back office running smoothly.

Recurring Reimbursement Processing

Many employees will submit the same expense every month, most commonly their health insurance premium. A recurring reimbursement process makes this easy. After the premium is validated once, the employee can simply attest each month that their coverage is still active to get reimbursed, saving everyone time.

Reimbursement Timing and Processing Schedules

Creating a consistent schedule is critical. You need to balance the ERISA decision timelines with your internal payroll cutoffs. For example, you might set a claim submission deadline of the 15th of each month to ensure all claims can be reviewed and included in the end of month payroll run. This part of the process is a key component of any step by step guide to approving and paying employee reimbursement claims successfully.

Monthly Reimbursement Reports and Cutoff Dates

A monthly reimbursement report provides a summary of all claim activity: submitted, pending, approved, paid, and denied. Establishing a firm cutoff date for submissions helps create these reports cleanly and ensures a predictable cycle. These reports are also vital for Applicable Large Employers (ALEs) who need accurate monthly data for their year end ACA reporting on Form 1095 C.

Choosing a Reimbursement Payment Method

You have a few options for paying employees. The most common methods are:

• Payroll: You set up a non taxable earning code to ensure the reimbursement isn't counted as wages and is paid with the employee's regular paycheck.
• Direct Deposit (ACH): A separate ACH transfer directly into the employee's bank account.
• Check: A traditional but less common option.

As long as the claim was properly substantiated, the payment is tax free to the employee regardless of the method.

Payroll Integration Steps

Manually entering reimbursements into your payroll software is time consuming and prone to error. Modern HRA administrators, like SimplyHRA, offer payroll integrations that automate this process. Using a secure file transfer or an API connection, approved reimbursement amounts are sent directly to your payroll system, saving hours of administrative work.

See how SimplyHRA's audit ready reporting simplifies year end compliance.

Handling Special Cases and Staying Compliant

Benefits administration always includes exceptions. Having clear policies for unique situations like employee terminations and retroactive claims protects your plan from compliance risks.

Your Retroactive Claim Policy

Your plan documents should clearly state your policy on retroactive claims. A core rule is that an HRA cannot reimburse medical expenses that were incurred before the HRA existed or before the employee was officially covered by the plan.

Termination Reimbursement Handling

When an employee leaves the company, their ICHRA coverage typically ends. However, they may still have claims for expenses that occurred while they were covered. Your plan can, and should, allow for a reasonable run out period (e.g., 60 or 90 days) for former employees to submit these final claims. Additionally, since HRAs are group health plans, they are generally subject to COBRA, which you may need to offer upon termination.

Recordkeeping and Year End Compliance Reports

Compliance doesn't end when a claim is paid. ERISA requires you to maintain records related to the plan, including claims and payment data, for at least six years. At the end of the year, you'll use this data to complete required filings, such as Form 1095 C for ALEs, which has specific codes for reporting ICHRA offers. Following a clear step by step guide to approving and paying employee reimbursement claims throughout the year makes this final step much easier.

Want a quick walkthrough of SimplyHRA's workflows and reports? Get a demo today.

Frequently Asked Questions

What documentation is essential for an employee reimbursement claim?

You need proof of the expense, which typically includes the date of service, description, provider, and amount. An EOB from an insurer or a detailed receipt is ideal. For an ICHRA, you also need proof of Minimum Essential Coverage for the month, which can be a simple employee attestation.

How quickly must an employer approve or deny a claim?

Under ERISA rules, decisions on post service claims must be made within 30 days of receiving the claim. A 15 day extension is possible if you notify the employee.

How can employees track the status of their reimbursement claims?

Many employers use a benefits administration platform or online portal that allows employees to see the real time status of their claims, from submission to payment.

Can we reimburse an expense that happened before the employee was covered?

No. An HRA can only reimburse qualified medical expenses that were incurred on or after the date the employee's coverage under the plan became effective.

What's the best way to pay employee reimbursements?

Integrating with your payroll system using a dedicated non taxable earning code is often the most efficient method. Direct deposit via ACH is another excellent and common option.

Why is a consistent reimbursement process important for compliance?

Following a consistent process ensures every claim is reviewed against the same standards required by the IRS and ERISA. This prevents errors, ensures fairness, and creates an audit ready trail that proves your plan is being administered correctly.

How long do we need to keep reimbursement records?

ERISA requires that plan records, including claim and payment documentation, be kept for a minimum of six years after the relevant report was filed.