Section 105 plans are a type of reimbursement health plan that allows small businesses to reimburse their employees for medical costs tax-free. Health reimbursement arrangements (HRAs) are a popular type of Section 105 plan.
Section 105 plans play a huge role in the employer-sponsored health insurance market, particularly in self-insured plans.
Self-insured Section 105 medical reimbursement plans offer dynamic, cost-effective, and sustainable employee benefits options. As such, they're a popular alternative to traditional group health insurance.
Watch our on-demand webinar: how the HRA works for employers.
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.
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.
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 plans are also frequently found in the form of medical reimbursement plans. With a Section 105 medical reimbursement plan, a business would either:
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:
This blog was originally published in 2014. It was last updated November 25, 2020.
What questions do you have about Section 105 Plans? Leave a comment below.