Section 105 medical reimbursement plans, such as health reimbursement arrangements (HRAs), offer employers a way to reimburse employees for individual health insurance.
Using a tax-free reimbursement plan helps a business save on taxes, manage costs, and get in compliance. For example, businesses who currently give employees money for health insurance are adopting formal reimbursement plans to avoid new penalties, which start July 1, 2015.
Wondering what a sample medical reimbursement plan looks like?
This article outlines a sample plan design for a Section 105 medical reimbursement plan.
Medical Reimbursement Plan - Sample Plan Design
A Section 105 medical reimbursement plan is simple; there are just a few different plan design decisions for a business to make. Here are six questions to ask while setting up a plan, illustrated by a sample.
1. What type of Section 105 Plan are we using?
There are a few ways Section 105 Plans are used. If the company is looking to reimburse employees for individual health insurance premiums, and there are more than two participants, the type of plan is called a health reimbursement arrangement (HRA).
Sample - “Denver Tech,” a small and growing technology company in Colorado, has decided to offer a Defined Contribution Health Benefits program to its 15 full-time employees. The company uses a Healthcare Reimbursement Arrangement to give allowances to employees for individual health insurance.
2. When will the plan start?
The company establishes a plan start date, usually on the first day of any month.
Sample - Denver Tech establishes a plan start date of July 1st.
3. What allowance amounts will we provide?
The company may provide the same allowance to all employees, or offer different allowances based on employee class or family status.
Sample - Denver Tech designs two classes of employees: full-time managers and full-time associates. For the manager class, the company offers $350/month (single) and $500/month (family). For the associate class, the company offers $200/month (single) and $350/month (family).
4. What makes employees eligible for the benefit?
The company sets eligibility requirements for the medical reimbursement plan. Eligibility may include criteria based on job function and role and/or include a waiting period (not to exceed 90 days).
Sample - For Denver Tech’s plan, all full-time employees (working 35+ hours/week) are eligible after a 30-day waiting period.
5. What categories of medical expenses will we reimburse?
Depending on the type of medical reimbursement plan used, the employer may be able to decide which categories of medical expenses the plan will reimburse.
Sample - Denver Tech’s Healthcare Reimbursement Plan is designed to comply with the ACA Market Reforms. As such, the plan reimburses health insurance premiums and basic preventive care expenses.
6. Who will administer the Plan?
Companies must consider who will administer the reimbursement plan. Options include self-service reimbursement software or a third party administrator (“TPA”). Self-administration is also possible, but not recommended because of the various compliance requirements.
Sample - Denver Tech partners with a self-service reimbursement software provider. After initial setup, Denver Tech spends 5 minutes/month administering the reimbursements online.
As you can see from this sample plan, setting up and administering a tax-advantaged medical reimbursement plan is simple. To summarize, follow these steps to set up a Section 105 medical reimbursement plan:
Design the plan (decide on employee allowances, eligibility criteria, etc.)
Decide how you will set up and administer the plan
Establish written, legal plan documents
Distribute plan documents and benefit information to employees
Do you have a question about what goes into a sample medical reimbursement plan or Section 105 Plan? Leave a comment below.