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A growing number of companies are recognizing the value of investing in executive health programs, but a critical aspect often overlooked is the structure of funding these benefits. Choosing the wrong approach can lead to unexpected tax liabilities, compliance risks, and a significant administrative burden.
Companies that prioritize the well-being of their top leaders are seeing positive returns in performance, retention, and overall business continuity. However, according to recent analysis, how these benefits are funded is just as important as offering them in the first place. The structure of an executive health program can significantly impact a company’s tax exposure and internal workload.
Many employers currently fund executive physicals through direct contracts with facilities or by directly reimbursing executives. While seemingly straightforward, this approach often creates “hidden challenges” that lead to unintended costs and avoidable risks for both the company and its leaders.
A major concern centers around how the Internal Revenue Service (IRS) views these arrangements. Depending on how an employer pays for an executive physical, the value of that exam can be considered taxable income for the executive, triggering a cascade of complications. These include income reporting requirements, tax withholding obligations, and the need for “gross-ups” to ensure the executive isn’t financially disadvantaged. Additional administrative steps are also required to document compliance.
Furthermore, employer-funded arrangements outside of a fully insured structure can raise concerns under IRS Section 105(h) regarding nondiscrimination. “Unintended missteps in this area can create penalties or compliance exposure,” one analyst noted. Operationally, direct contracts place the majority of the burden on HR and Finance teams, requiring them to manage vendor relationships, monitor service quality, and handle logistical issues.
KPI Health: A Fully Insured Alternative
KPI Health presents a different model, designed to alleviate these challenges. As a fully insured, ACA-excepted executive health solution, it offers a compliant and scalable way to support executive well-being without the tax uncertainties and administrative complexities of direct-contract programs.
The key advantage lies in its structure as a supplemental health insurance policy. This avoids the tax pitfalls associated with stand-alone reimbursements. Specifically, employer-paid premiums are generally tax-deductible, benefits are non-taxable to executives, and Section 105(h) nondiscrimination rules do not apply. This ensures executives receive the intended benefit without needing to navigate complicated tax reporting.
KPI Health also significantly reduces the internal workload for HR and Finance. Teams are relieved of the need to vet facilities, manage multiple relationships, review invoices, or resolve logistical issues – all of which are handled by KPI Health. This allows HR and Finance to focus on more strategic initiatives.
A Modern Approach to Executive Well-being
Today’s leaders expect more than just an annual physical. They desire flexibility, personalization, and ongoing support. KPI Health delivers this through nationwide access to vetted executive physical programs, TopDoc Connect – a service that connects leaders with top specialists for follow-up care – and Connect & Thrive, a confidential mental health and well-being resource.
The program also offers supplemental health insurance coverage for wellness treatments, follow-up care, and mental health services often excluded from traditional health plans. By providing support before, during, and after the physical, KPI Health transforms the traditional exam into a year-round health advantage.
Streamlining Executive Health for Long-Term Success
Executive health benefits should enhance performance, not create administrative strain or tax complications. KPI Health offers a fully insured, compliant alternative that protects both leaders and the organization. By moving away from direct-contract arrangements, companies can gain a program that is easier to manage, more flexible for executives, and better aligned with long-term organizational success.
1 Return on investment of workplace-based prevention interventions: a systematic review; European Journal of Public Health, 2023
2 Brown & Brown, 2022
*This is not local, state or federal tax advice. This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied on for tax advice. Each person and each company is unique with their own facts and circumstances. It is recommended that you seek the independent counsel of a professional tax adviser.
