Is tax-free health insurance reimbursement still allowed in 2015 under the new rules established by the PPACA?by Tom Luker on 09/06/15
Yes, the Tax Code still allows tax-free reimbursement under the current Internal Revenue Code [IRC]. The following comments are taken from a recent blog dated 08/26/2015 from Christina Merhar of Zane Benefits of Utah, a major TPA.
- IRC Section 105: Allows tax-free reimbursements from a self-insured medical reimbursement plan if the reimbursements are for expenses incurred for “medical care” as defined in Sec. 213(d).
- IRC Section 213(d): Defines “medical care” for personal deduction and Sec. 105 distributions.
- IRC Section 106: Allows the value of the self-insured medical reimbursement plan to be tax-free to employees.
- IRC Section 162: Allows reimbursements to be tax-deductible to the employer as a business expense, for example, on self-employed Schedule C or Schedule F in the “Fringe Benefits” line.
As you can see, one key piece is a formal [written] self-insured reimbursement plan is used, sometimes called a Healthcare Reimbursement Plan or Section 105 Plan [MERP].
Another key piece is that a self-insured medical reimbursement plan is a group health plan. As such, it must also comply with the new Affordable Care Act [PPACA] Market Reforms.
To reimburse employees tax-free and to avoid costly fees, the reimbursement plan must be designed to comply with the PPACA PHS 2711 and PHS 2713, as well as existing federal regulations ERISA, HIPPA, COBRA, and IRS.
PHS 2713 requires all group health plans to cover basic preventative health services without cost-sharing. To comply, the MERP covers preventative care on an unlimited basis.
PHS 2711 provides that no annual or lifetime limits may be placed on essential health benefits:
- The MERP may not place an annual limit on the basis preventative health services.
- Health insurance premiums are not essential health benefits – so, a premium reimbursement plan can place a “premium-specific” annual limit on premium reimbursements.
Conclusion: Under current tax code, tax-free reimbursement of individual health insurance is still allowed through a self-insured MERP. The MERP, however, must be structured to comply with the new group health plan reforms. An example of a compliant plan for tax-free individual health insurance reimbursement is a Health Reimbursement Plan [HRP].
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