What Health Insurance Premiums Can Section 105 Plans Reimburse?

Written by Holly Bengfort | March 10, 2026 at 2:00 PM

Health insurance costs are rising, and many employers are looking for ways to support their employees without breaking the bank. Section 105 plans, the tax-advantaged foundation behind many health reimbursement arrangements (HRAs), offer an affordable solution.

In this guide, we’ll explain how Section 105 plans work, the types of plans available, and which premiums are eligible for reimbursement.

In this blog post, you’ll learn:

How Section 105 plans work.
Which health insurance premiums qualify for reimbursement under a Section 105 plan.
IRS rules employers need to know for Section 105 compliance.

How Section 105 plans work

A Section 105 plan lets employers reimburse employees for health insurance and medical expenses tax-free. Backed by IRC Section 105¹, these plans include popular health benefit options like HRAs.

Section 105 plans are straightforward to implement and administer. Here’s how they typically work:

Create a written plan. The employer establishes a formal Section 105 plan that outlines eligibility, covered expenses, and reimbursement rules.
Set allowances and terms. The employer determines how much to contribute per employee, either monthly or annually, and defines any other plan parameters.
Submit and review expenses. Employees submit receipts or proof of eligible out-of-pocket medical expenses. The employer, a third-party administrator (TPA), or a benefits platform such as PeopleKeep by Remodel Health, reviews submissions to confirm they qualify under the plan.
Reimburse tax-free. Once verified, the employer reimburses employees 100% tax-free, up to the allowance cap set in the plan.

Types of Section 105 plans

When it comes to Section 105 plans, one size doesn’t fit all. Each type of plan operates under the same tax‑advantaged rules, but they differ in who they work best for and what expenses they cover.

Section 105 plan type	What it covers	Employer size
Individual coverage HRA (ICHRA)	Individual health insurance premiums, deductibles, copays, and other medical expenses. ICHRAs are governed by Section 105 rules, the ICHRA Final Rules, and IRS Notice 2002-45.	Any size.
Qualified small employer HRA (QSEHRA)	Individual health insurance premiums, deductibles, copays, and other qualified medical expenses. QSEHRAs are governed by Section 105 rules and the 21st Century Cures Act.	Small businesses with fewer than 50 full-time equivalent employees (FTEs).
Self-funded health plan	Employer directly pays medical claims and has full control over plan design and reimbursements.	Any size.
Medical expense reimbursement plan (MERP)	Out-of-pocket medical costs not reimbursed elsewhere, such as deductibles or copays.	Any size.
Accident and health plans	Specific medical events like accidents, critical illness, or hospital stays.	Any size.
Flexible spending accounts (FSAs)	Pre-tax contributions for eligible medical expenses.	Any size.

However, only HRAs like the QSEHRA, ICHRA, and one-person stand-alone HRA can reimburse employees for health insurance premiums in a post-ACA market reform world. This is because the ACA considered tax-free reimbursement a group plan, meaning the plan needed to provide essential health benefits and preventive care at no cost. In 2016, Congress passed the 21st Century Cures Act, creating the QSEHRA and allowing it to bypass those rules by integrating with individual health insurance. Federal regulations created the ICHRA a few years later, and it became available to all employers in 2020.

Reimbursing employees tax-free for premiums outside of an HRA can result in penalties² for violating the ACA.

With a clear understanding of Section 105 plan types, let’s explore why HRAs are increasingly the preferred choice for delivering these benefits.

The growing popularity of HRAs

Health reimbursement arrangements (HRAs) give employers flexible, tax-efficient ways to reimburse health expenses while giving employees control over their coverage. They're becoming one of the most popular ways to implement Section 105 plans.

According to the HRA Council's 2025 data report, combined adoption of ICHRA and QSEHRA grew 19% year-over-year. ICHRA is driving more growth than the QSEHRA, with an increase of 21% in the number of employers offering the benefit.

ICHRA vs. QSEHRA

Here's what to consider when deciding which HRA is right for you.

Feature	ICHRA	QSEHRA
Employer size	Any size employer.	Small businesses with fewer than 50 FTEs.
Customization	Can customize allowances based on 11 employee classes, age, or family size.	Can customize allowances based on employee age or family size.
Employee eligibility	Employees need individual health insurance coverage to participate. This includes Medicare Parts A and B together or Part C.	Employees need plans that provide minimum essential coverage (MEC) to participate.
Reimbursement limits	No federal limits. Employers set their contribution amounts.	The IRS sets maximum reimbursement amounts annually. Employers can offer a contribution up to this cap.
Reimbursement	Individual health insurance and other eligible out-of-pocket healthcare costs.	Individual health insurance and other eligible out-of-pocket healthcare costs.
Ideal for	Employers seeking scalable and flexible reimbursement options.	Small employers looking for a simple, tax-advantaged health benefit.

What premiums a Section 105 plan can reimburse

Under Section 105, employers can reimburse health insurance premiums as they qualify as medical care expenses under Internal Revenue Code (IRC) Section 213(d)³ and IRS Publication 502⁴.

Here are the most common types of premiums that qualify:

Major medical health insurance premiums. These are what most people consider to be a traditional group health plan. A QSEHRA can reimburse an employee’s share of a spouse’s group plan premiums as long as it wasn’t paid for with a pre-tax deduction. This is known as employer-sponsored premium reimbursement.
Individual health insurance premiums. These are plans that meet the requirements for qualified health plans⁵ under the Affordable Care Act (ACA).
Medicare. If the employee has Medicare Part A and Medicare Part B together, or Medicare Part C by itself, they meet ACA requirements for MEC 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

What premiums a Section 105 plan can't reimburse

Even though Section 105 plans are flexible, not all premiums qualify.

Non‑qualified premiums under a Section 105 plan include:

Life insurance premiums
Income replacement policies (disability or critical illness insurance)
Hospital indemnity or fixed indemnity plans
Plans paid with pre‑tax dollars
Any plans that solely provide a lump sum payment for medical costs or lost income

Section 105 plan compliance

Section 105 plans are considered group health plans, which means they must comply with IRS, HIPAA, COBRA, ERISA, and ACA rules.

IRS rules you need to be aware of include:

Plan documents. Employers must adopt and maintain a formal plan document defining eligibility and covered expenses.
Expense documentation: Employees must substantiate eligible expenses before reimbursement.
Non‑discrimination. Plans must not discriminate in favor of highly compensated employees regarding eligibility or benefits.

Conclusion

Section 105 plans give employers a tax‑efficient way to reimburse employees for qualifying health insurance premiums. But premium reimbursement can only happen with the right Section 105 plan in place, like a health reimbursement arrangement (HRA). With a QSEHRA or ICHRA, you can provide meaningful flexibility and control to employees while staying compliant with IRS and ACA rules.

Ready to offer a Section 105 HRA plan to your team? Schedule a call with one of our HRA specialists today to get started!

This blog article was originally published on November 30, 2018. It was last updated on March 10, 2026.

View full post