This article answers 10 frequently asked questions (FAQs) from employees about "pure" defined contribution health plan (DCP) rules.
Many employers, especially small businesses and nonprofits, are offering employees health benefits with an approach called "pure" defined contribution health plans, or DCPs.
With DCPs, an employer provides healthcare allowances employees can used on their choice of individual health insurance -- rather than providing a specific health insurance plan. This type of employee health benefits is becoming more popular because it offers cost savings to both the business and employees, while providing access to quality health insurance coverage.
Note: In these FAQs we are discussing rules for defined contribution health plans, where the DCP is set up using a limited-purpose Section 105 medical reimbursement plan. The Section 105 plan is used to comply with various federal regulations and because of this, specific rules apply.
FAQs - Defined Contribution Health Plan (DCP) Rules
1. Do I have to have health insurance to receive a DCP allowance?
An employer may require you to have health insurance to be eligible for reimbursement through your DCP. However, not all employers require this. Your DCP Plan Documents will outline any 'proof of insurance' requirement.
2. Who owns the DCP allowance?
According to IRS rules, your employer.
3. Who can put money in my DCP allowance?
According to IRS rules, DCPs are fully owned and funded by your employer.
4. Does the money in my DCP earn interest?
Typically, no. Under most DCP rules, the allowances aren’t individually owned bank accounts that are eligible to earn interest.
5. What is an eligible health care expense for DCPs?
Eligible expenses under a DCP are determined by your employer and usually include different types of eligible health insurance premiums (see this article for a list of health insurance premiums a Section 105 DCP can reimburse).
Eligible expenses must be incurred by the employee and/or eligible members of the employee’s family, and take place within the benefit plan year.
6. How much can be contributed to my DCP?
The amount contributed to your DCP is up to your employer, and specified in your DCP Plan Documents.
7. What is the maximum reimbursement amount from my DCP?
The DCP contribution rules are determined by your employer. Most plans will reimburse eligible expenses up to the full available balance in your DCP.
8. What happens to the money in my DCP if I leave my job or retire?
Most often, the unused money stays with your employer when you terminate employment. The rules are specified in your Plan Documents.
9. Does the money I have in my DCP roll over from year to year?
This DCP rule is up to your employer, however most DCPs are set up with no annual rollover to comply with health reform changes.
10. Can I use the money in my DCP to pay for my family's premium expenses?
If your DCP allows it, yes. The money in your DCP can be used to pay for eligible premium expenses of any family member who qualifies as a dependent on your tax return. However, the dependent must also be covered by your DCP and this rule is set by your employer.
What questions do you have about defined contribution health plan (DCP) rules? Leave a comment below.