George asked me a bunch of questions last weekend about my HRA. One of the areas I had to do some research on was Section 105 HRAs. I was trying to be helpful but I am not a benefit professional. Fortunately Christina Merhar at Zane Benefits wrote a nice article today on the subject, Can a Business Pay for Employees’ Individual Insurance Plans?.
Yes. Done correctly, a business is allowed to use a Health Reimbursement Arrangement, also called a Health Reimbursement Account or HRA, to contribute tax-free to employees’ individual health insurance plans. This type of medical reimbursement is similar to the way a business can contribute to group health insurance premiums on a tax-free basis.
HRA for Premium Reimbursement
With a Section 105 HRA, any business can contribute to employees’ individual health insurance plans tax-free. An HRA is a tax-advantaged plan that employees can use to receive reimbursement for qualified medical expenses, including individual health insurance plans. HRAs are 100% funded by employers. This type of arrangement, where the HRA is not linked to a group plan, is often called a Stand-Alone HRA.