Accounting firms and CPAs are a trusted source of information for small businesses. When your clients come to you with questions about individual health insurance reimbursement, we’ve got you covered. Here is everything you need to know to advise your clients on whether a section 105 plan is right for them.
What Is a Section 105 Plan?
A section 105 plan is the type of accident and health plan regulated by section 105 of the Internal Revenue Code (IRC). This can refer to many different types of plans, including self-funded (or self-insured) health plans, healthcare reimbursement plans (HRPs), health reimbursement accounts (HRAs), and medical expense reimbursement plans (MERPs).
Conducting a Benefits Evaluation
Your clients may ask you a wide variety of health benefits questions, but “Which plan is right for us?” is likely to be on the list. As their CPA, you are the person who can tell them what may be in their best interests financially—but money is not the only factor at play. Here are some questions to ask your clients to help shorten the list:
How many people will be eligible? This typically starts with the number of full-time-equivalent (FTE) employees on board, but remember to consider whether spouses or dependents will be included. Some companies only allow spouses if they do not have employer-sponsored health coverage of their own. Others include all immediate family members. Which path is right for your client is up to them.
How much will your client contribute? The average employer covers about 70 percent of healthcare costs, but the percentage your client chooses should be carefully weighed—overall cost versus how much they can feasibly and consistently afford.
What would employees feel comfortable with? Surveying employees (through SurveyMonkey, for example) is a good starting point to figure out how people feel about benefits and what they expect from a health plan. It is unlikely that your client can meet all employee expectations, but having this information ahead of time will be helpful for your client in communicating the reasons behind their benefits decision.
Does your client qualify for a section 105 reimbursement plan? If a reimbursement plan is looking like the most cost-effective option for your client (it often is), make sure that they can provide it without incurring penalties. Under 2017 ACA laws, employers with 50 or more FTE employees must offer health insurance. If your client has 49 or fewer FTE employees, they may qualify for HRPs. Tax-free reimbursement through a Section 105 plan also depends on corporate structure. Check against this list to see Section 105 plan eligibility by owner status.
Determining If a Section 105 Plan Is Right for Your Client
The four questions above are a great starting point to determine which options are best for your client. Remember that you can work with a broker if you need clarification on any language in IRC section 105. They can answer client-specific questions for you and provide options you may not have considered.
Because you are a trusted source of information for your clients, they may ask you about healthcare options. As their accountant, you are in the best position to advise them about their finances. Use the questions above to help evaluate their fit for a Section 105 Reimbursement Plan.
Thinking of offering a section 105 plan but still have questions? Leave them in the comments below.