Health reimbursement arrangements (HRAs), also known as Section 105 plans, have long been used by small and mid sized employers to offer employees an affordable, quality health benefit. These plans enable employers to reimburse employees with tax free money for individual insurance premiums and out-of-pocket medical expenses like copays and costs not covered by insurance.
In fact, a recent survey by Willis Towers Watson found that the popularity of the newest HRA on the market, the individual coverage HRA (ICHRA), is growing even among large employers — with 20% of large employers planning to use an ICHRA by 2022.
With that in mind, let’s take a look at the types of health insurance premiums a Section 105 plan can reimburse.
Health insurance premiums a Section 105 plan can reimburse
Section 105 medical reimbursement plans can reimburse the following types of insurance premiums provided they were not already paid with pretax dollars:
- Major medical individual health insurance premiums. These are what most people consider to be a traditional group health plan. PeopleKeep supports these premiums through our group coverage HRA (GCHRA).
- Individual health insurance premiums. These are plans that meet the requirements for Qualified Health Plans under the Affordable Care Act. PeopleKeep supports these through our ICHRA and QSEHRA products.
- Medicare. If the employee has Medicare Part A and Part B together, or Part C by itself, they meet ACA requirements for Minimum Essential Coverage and are eligible for premium reimbursement for all parts of Medicare, including premiums for Medigap.
- Dental care and vision care premiums
- Qualified ancillary premiums (like accident policies)
- COBRA premiums
- Long-term care premiums
Health Insurance Premiums a Section 105 Plan Cannot Reimburse
Health insurance policy premiums that are not reimbursable tax-free through a section 105 medical reimbursement plan include:
- Life insurance policies
- Policies providing payment for loss of earnings ("income replacement"), such as most critical illness and disability policies
- Policies for loss of life, limb, sight, etc.
- Policies that pay a guaranteed amount each week for a stated number of weeks if you are hospitalized for sickness or injury
- Health care ministry sharing programs ("medi-share" or medical share plans)
Section 105 plans enable employers to reimburse employees with tax free money for most major insurance premiums. In addition to premiums, employers can also choose to reimburse for eligible expenses specified in IRS Publication 502. For these additional expenses, employers have discretion as to which expenses they will cover and which they will not. These expenses will be listed in the HRAs plan documents.
This post was originally published on January 8, 2014. It was last updated November 30, 2020.