Section 105 Plans

With the rising costs of group health insurance, many employers are cutting costs by either increasing deductibles or decreasing co-insurance percentages. To ease the financial burden on employees, some employers are self-funding special tax-free accounts to cover a portion of employees' out-of-pocket medical expenses.  This is done through the use of a Section 105 HRA plan coupled with a high deductible group health plan. The employer also benefits because funds directed into the HRA are treated as business expenses rather than salaries saving FICA and unemployment taxes.

An IRS Section 105 Health Reimbursement Arrangement (HRA) is an employer funded tax-free rollover medical spending account.  HRAs have been around for a while and are enjoying a new found popularity since the IRS issued new guidance on the plans in June 2003.  This guidance allows funds remaining in an HRA account at the end of the plan year to rollover tax-free to the next year.