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We've updated one of our most popular materials. See what's new in our guide to MERPs.

A Guide to Section 105 Plans

Compliance Requirements for Section 105 Plans

Section 105 Medical Reimbursement Plans are considered group health plans. As such, they must comply Section_105_medical_reimbursement_compliancewith IRS, HIPAA, COBRA,  ERISA, and the Affordable Care Act (ACA) rules.

This section details compliance requirements that may impact your Section 105 Plan.

Tip: Use a Section 105 Software Administrator to make compliance easy.

Internal Revenue Service (IRS)

  • Plan Documents: The IRS requires that written Plan Documents are established and maintained. Plan Documents define what expenses are eligible for reimbursement, the amount of employer contribution, and other required details about the reimbursement plan.

  • Documentation: The IRS requires that employees submit proper documentation verifying their claim for reimbursement, and that supporting documentation is saved on file for ten years.

  • Non-Discrimination: Section 105 Plans must comply with IRS nondiscrimination rules. The rules state the plan must not discriminate in favor of highly compensated individuals (HCIs) with respect to eligibility to participate in the plan or benefits provided under the plan.

Health Insurance Portability and Accountability Act (HIPAA)

  • HIPAA Privacy Rules: Section 105 Plans are governed by HIPAA Privacy Rules. In order to administer a Plan correctly, the entity processing employee reimbursement claims receives Protected Health Information (PHI) that is required to be held confidentially under HIPAA.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Only for plans with 20 or more participants

  • COBRA Compliance:  Employers must give terminated employees the option to continue their participation in the Section 105 Plan for a period after termination, and may charge an employee up to 102% of the value of their allowance if COBRA is elected.

Employee Retirement Income Security Act (ERISA)

  • Summary Plan Description: Section 105 Plans are employee welfare plans under ERISA. ERISA requires every [welfare] plan to have a Summary Plan Description (SPD) and to furnish copies to each participant.

  • ERISA Compliance: The U.S. federal government has specific regulations employers must comply with in order to reimburse employees for individual health insurance premiums without triggering ERISA plan status for the individual health insurance policies. For example, the employer must not endorse specific individual health insurance policies or pay directly for them.

Patient Protection and Affordable Care Act (ACA)

  • Annual Limit Compliance: Section 2711 of the Public Health Services (“PHS”) Act, as added by the ACA, provides that no annual or lifetime limits may be placed on essential health benefits (“EHB”). PHS Act 2711 provides that annual limits and lifetime limits may be placed on benefits that are not EHB, such as health insurance premiums. Section 105 Plans must be designed to comply with PHS 2711.

  • Preventive Care Compliance: Section 2713 of the PHS Act, as added by the ACA, requires group health plans (including Section 105 Plans) to cover basic preventive health services without cost-sharing.

  • 90-Day Waiting Period Compliance: The ACA prohibits waiting periods over 90 days for eligible employees.

  • Internal and External Claims Appeal Process: The ACA added new requirements to the internal and external appeal process including how and when procedures are communicated to plan participants.

  • Dependent Coverage for Adult Children up to Age 26: Section 2714 of the PHS Act, as added by the ACA, provides that group health plans (including Section 105 Plans) that make available dependent coverage of children must make such coverage available for children until 26 years of age.

  • Uniform Explanation of Coverage and Definitions: The ACA requires that group health plans, participants, and beneficiaries receive a standardized summary of benefits and coverage (“SBC”) and a set of uniform definitions (“Uniform Glossary”), both of which must conform to requirements outlined in the ACA and existing regulations.

  • Form 720 Comparative Effectiveness Research (CER) Fee: The ACA includes a "research fee" that plan sponsors must pay on an annual basis annually via Form 720.

  • 60-Day Notice of Material Modification: The ACA requires employers to provide 60 days advanced notice to participants when making material modifications to their group health plan (including Section 105 Plans).

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