A common question from employers setting up a Section 105 Premium Reimbursement Plan is, “Can I offer group health insurance coverage to some employees, and a Section 105 Premium Reimbursement Plan to others?” The answer? Read on.
First, What is a Section 105 Premium Reimbursement Plan?
A Section 105 Premium Reimbursement Plan is simply an agreement for an employer to reimburse employees for their individual health insurance premium expenses.
With a Premium Reimbursement Plan, the business offers employees a monthly healthcare allowance to use on individual health insurance – instead of contributing to a group health insurance plan.
Why Would an Employer Want to Offer Both?
The most common situation is this - you already have a group health insurance plan in place, but some employees do not participate.
For example, they have individual coverage, coverage through a spouse, etc. and you want to help with a contribution to their health insurance as well.
So, Can an Employer Offer Both?
Yes, technically you can offer group health insurance coverage to some employees and a Section 105 Premium Reimbursement Plan to others. However, before you structure it this way, keep in mind these three important considerations.
1. Eligibility for the Premium Reimbursement Arrangement
First, you must set eligibility criteria for the Section 105 Plan. Eligibility can be based on any of the following:
Non-participation in the group health insurance plan.
Bona-fide job criteria (based on location, full time vs. part time, job title or role, etc.).
Waiting periods (not to exceed 90 days).
Using this criteria, you can structure the Section 105 Plan to include employees who are not eligible for the group health insurance plan and/or who are eligible, but do not participate.
2. The Types of Premiums a Section 105 Plan Can Reimburse
Next, it is helpful to understand the types of premiums employees can be reimbursed for with a Section 105 Plan.
Section 105 Plans can reimburse most major medical insurance premiums, dental and vision premiums, COBRA premiums, and some ancillary premiums - provided they were not already paid for with pre-tax dollars.
Section 105 plans cannot reimburse life insurance policies, health care ministry sharing programs, or “income replacement" policies - among others.
For a full list see: What Health Insurance Premiums Can Section 105 Plans Reimburse?
3. Meeting Group Health Insurance Participation Requirements
Another consideration is you may run into a situation where you have trouble meeting minimum participation requirements for the group health insurance plan.
For example, employees may see they can get less expensive coverage with an individual health insurance plan, decline the group health insurance plan, and be eligible for the Section 105 Plan. All of a sudden, participation in the group health insurance plan dips, you no longer meet the minimum participation requirements, and the group health insurance plan is cancelled.
In this case, it is common for employers (over the course of a couple years) to switch entirely to a Section 105 Premium Reimbursement Plan. Don’t worry, though. This can be an advantage (and a big cost-saver) for your business and employees.
Can you offer a group health insurance plan for some employees, and a Section 105 Premium Reimbursement Plan to others? Yes. However, make sure your plan design complies with the guidelines above.
Do you have additional questions on Section 105 Plans, premium reimbursement, or plan design? Leave a question below.