Health Reimbursement Plan

Section 125

Section 125 is part of the IRS Code that allows employees to convert a taxable cash benefit (salary) into non-taxable benefits.

The Premium Only Plan is a popular flexible spending plan of the Section 125 Plan. It allows for certain employee paid group insurance premiums to be paid with pre-tax dollars. The more popular qualified premiums (if offered by employer) are: health, dental, prescription, and vision.

The Reimbursement Flexible Spending Plan allows an employee to put pre-taxed funds into an account for medical/dental/vision expenses not covered by their health plan.  The employee can also put pre-taxed funds into a separate account for day- care expenses for their dependent (s) while they are at work.

While employees are saving on their taxes, the employer also saves on the matching Social Security and Medicare taxes of all the funds put through the Section 125 plan(s). Other advantages for putting in Section 125 plan (s) are cost control regarding the rising costs of employee benefits, increases employee morale and loyalty, enhances the benefits package, and helps in recruiting quality new employees.


Section 105

A Section 105 Medical Reimbursement Plan, or more commonly known as Health Reimbursement Account (HRA), under IRS regulations, allows reimbursement for medical expenses under an employer-sponsored health plan. An HRA is usually put in alongside a conventional group health insurance plan to reimburse deductible amounts or other expenses not covered by the insurance plan. This type of plan is 100% employer funded.  The biggest advantage to the employer is all reimbursements are tax deductible by the business.  When designing the HRA plan, the employer has enormous flexibility, such as setting maximum amounts for reimbursement and eligibility requirements.