Many employers sponsor a self-insured medical reimbursement plan that is subject to Internal Revenue Code Section 105(h) nondiscrimination testing. Common self-insured medical reimbursement plans are self-funded major medical plans, health reimbursement arrangements (HRAs), and medical expense reimbursement plans (MERPs).
Under Internal Revenue Code Section 105(h), a self-insured medical reimbursement plan must pass two nondiscrimination tests. Failure to pass either test means that the favorable tax treatment for highly compensated individuals who participate in the plan will be lost. The Section 105(h) rules only affect whether reimbursement (including payments to health care providers) under a self-insured plan is taxable.
When Section 105(h) was enacted, its nondiscrimination testing applied solely to self-insured plans. Under the Patient Protection and Affordable Care Act (ACA), Section 105(h) also applies to fully-insured, non-grandfathered plans. However, in late 2010, the government delayed enforcement of Section 105(h) against fully-insured, non-grandfathered plans until the first plan year beginning after regulations are issued. To date, no regulations have been issued so there is currently no penalty for noncompliance.
Practically speaking, if a plan treats all employees the same, then it is unlikely that the plan will fail Section 105(h) nondiscrimination testing. Read More»
This information is general and is provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
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