We talk a lot about Section 105 Plans and how they are used in the employer sponsored health insurance market. For example, many small businesses are evaluating self-insured Section 105 Medical Reimbursement Plans to offer dynamic, cost-effective, and sustainable employee health benefits - as an alternative to traditional group health insurance.
That being said, there seems to be some misunderstanding about IRC Section 105 and its application in the employer sponsored health insurance market.
This article provides a simple, to-the-point overview of IRC Section 105 and Section 105 Plans.
Note: As of January 2017, Zane Benefits is no longer offering self-insured Section 105 Plan administration tools. Instead, our product supports the Small Business HRA, a new compliant reimbursement arrangement specifically for businesses with fewer than 50 employees. We believe the HRA is a better product for small businesses than Section 105 Plans like the HRP due to clear compliance requirements and simplicity. Contact us with any questions.
Overview IRC Section 105
IRC Section 105 is the section of IRS tax code that discusses amounts received under accident and health plans. IRC Section 105 allows qualified distributions from accident and health plans to be excluded from income (“tax-free”).
IRC Section 105 allows tax-free reimbursements for expenses incurred for medical care as defined in Section 213(d), including reimbursement for individual (personal) health insurance expenses.
These types of health plans are often referred to as Section 105 Plans.
How Section 105 Plans are Used
Self-Funded (Self-Insured) Health Plans
A common type of Section 105 Plan is a self-funded (or self-insured) health plan, where the employer self-funds (or self-insures) health benefits rather than pay premiums to an insurance company.
Section 105 Medical Reimbursement Plans
Section 105 Plans are also frequently found in the form of Medical Reimbursement Plans. With a Section 105 Medical Reimbursement Plan, a business would either:
Implement a Section 105 Plan alongside a conventional group health insurance plan (to reimburse deductible amounts not covered by insurance). This is also called an Integrated HRA, linked HRA, deductible HRA, or GroupHRA.
Implement a Section 105 Plan as a stand-alone Medical Reimbursement Plan, used to reimburse employees for individual health insurance premiums. This is often called a Healthcare Reimbursement Plan (HRP) or ZaneHealth. Note: The Section 105 Plan must be designed to comply with the "Market Reforms" as outlined in IRS Notice 2013-54.
Similar Plans to Section 105
There are many different types of arrangements that fall within the umbrella of Section 105 Medical Reimbursement Plans. Some common terms you might hear are:
- Health Reimbursement Arrangement
- Health Reimbursement Account
- Healthcare Reimbursement Plan
- Medical Expense Reimbursement Plan
- Medical Reimbursement Plan
- Section 105 Plan
What questions do you have about Section 105 Plans? Leave a comment below.