Medical Reimbursement - Section 105
FAQs - Section 105 Plans
A plan set up by an employer to reimburse employees for their medical expenses that are not covered by their regular medical insurance is called a Medical Expense Reimbursement Plan. Reimbursable expenses might include deductible expenses, expenses in excess of policy limits, coinsurance, etc.
A Medical Expense Reimbursement Plan falls into Section 105 of the Internal Revenue Code. The goal of the Medical Expense Reimbursement Plan is for the employer to be able to save money. They do this by purchasing a high deductible health plan and using the savings to buy back a portion of the deductible.
How is the plan
Q: How is the
For example, the employer may have been able to offer a low deductible, say $250 to $500, to their employees in previous years. With the rise in health care costs, this type of plan is no longer viable for the employer. They decide to offer a $1,500 or $3,000 deductible, thus getting significant savings in the cost of their premium. The employer then buys back the deductible from his employees so that they are still only responsible for the first $250 or $500 of their deductible. Only a percentage of the employees will use their entire deductible so the employer's exposure is only that which is used. The end result is savings on premiums by moving to a high deductible health plan and continued employee satisfaction as the employee still only faces a $250 or $500 deductible.
Q: How does
the plan work?
The employer communicates with employees when necessary to verify transactions. Reporting to the employer and employees is provided as requested by the employer.
Employees are required to submit their Explanation of Benefits (EOB) from the insurance carrier to , Inc. in order to verify the eligibility of an expense.
Employees pay eligible medical expenses through the employer's system, with the maximum amount to be funded by the employer each plan year.
At the end of the plan year, the amount credited that is not spent belongs to the employer and can be used for future funding.
Q: What are
the requirements for Section 105 plans?
Q: What are
the non-discrimination requirements under
A medical reimbursement plan will not discriminate as to benefits if the type and amount of benefits available to highly compensated participants and their dependents are also available on the same basis for all other participants and their dependents. This test is applied by looking at available benefits rather than actual benefit payments under the plan.
happens if the plan is discriminatory?
Q: Is it true
that a MERP can pay for other medical
Q: Is a MERP
effective only for small businesses?
Q: Should I
allow an employee to administer this program
Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.
This page was last reviewed and/or updated on Friday, July 03, 2015 05:21 PM