HSA and Self-Standing 105(h) Plan

[Christine Roberts]

A medical corporation maintains a 105(h) medical reimbursement plan. They do not have a cafeteria plan. They also offer an HSA as well as non-high-deductible PPO and HMO options.

Given the IRS guidance (in Rev. Rul. 2004-45) on coordinating HSAs with HRAs and health FSAs, is it appropriate to treat a self-standing 105(h) plan as the equivalent of a health FSA, or is the Rev. Ruling. limited to health FSAs that are nested inside a 125 arrangement?

The corporation wants to allow participants to be reimbursed, under the 105(h) plan, for the high-deductible deductible under the HSA.

Its my conservative understanding that the IRS wants HSA participants not to be insulated from that high-deductible, such that the "health FSA" terminology would be extended to include self-standing 105(h) plans.

Any comments appreciated!

[QDROphile]

I think I agree with you, but you did not identifya high deductible plan. I assume there is a high deductible plan, the 105(h) plan is in addition and the 105(h) plan will cover medical expenses of the high deductible plan participant that the high deductible plan will not because the deductible has not been reached. If that is what you are describing, it kills HSA eligibility by providing disqualifying coverage.

[GBurns]

I keep seeing this term, but have never seen an explanation. What is a 105(h) plan??

[QDROphile]

The heading to section 105(h) of the Internal Revenue Code includes the term "Self-Insured Medical Expense Reimbursement Plan" and that term is defined in the text of section 105(h). The heading also includes the term "Discriminatory" but I think reference to a 105(h) plan generally does not presume that the plan is discriminatory, but instead that is is self insured and subject to 105(h).

[GBurns]

Considering the wording in the title of IRC 105(h) one should then infer that such a plan would only be applicable to "Amount paid to highly compensated individuals ... " as per the actual wording and have no applicability to amounts paid to non HC individuals.

It seems much more logical to refer to a MERP that is compliant and serving all categories of eligible employees and meeting non-discrimination tests, as a 1.105-11 or a 105-11 plan since that section of the Treas Regs is titled "Self-insured medical reimbursement plan" and covers more than 105(h) itself which only is relevant if 105(b) and (e) are both first met.

Or as has been done for decades, simply refer to it as a section 105 medical expense reimbursement plan especially since many subsections of both the IRC and Treas Regs have to all be complied with, not solely 105(h) for there to be a valid plan.