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Section 105 Health Reimbursement Arrangement (HRA)

Article ID: 232
Last updated: 21 Sep, 2014
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By Jason Watson ()
Posted September 2, 2014

Health Reimbursement Arrangements (HRAs), Health Reimbursement Plans (HRPs) and Medical Reimbursement Plans (MRPs) are all the same thing. Some TPAs attempt to repackage the guts of Section 105 under their own moniker for marketing purposes. Technically, Section 105 plans come from 26 CFR 1.105-11 titled Self-Insurance Medical Reimbursement Plan. For the exciting Federal Regulations, here is the link-


An HRA (which is the most commonly heard name) allows a qualified business owner to deduct 100% of qualified long-term care insurance, out of pocket medical expenses, and several other related expenses. This is a great way for business owners to reduce their tax consequence. The costs of these programs from TASC is about $400 per year. The break-even analysis is-

15% Marginal Rate Break Even 2,667
25% Marginal Rate Break Even 1,600
28% Marginal Rate Break Even 1,429

If you are in the 25% tax bracket, for example, this means you would need $1,600 in recurring medical expenses to break-even with the cost of the Section 105 plan administration.

HRAs are ONLY available to sole proprietors, single-member LLCs and single owner S Corps, unless accompanied by a group health plan that meets minimum essential coverage requirements. This is called an integrated HRA and allowed by the Affordable Care Act, and clarified in IRS Notice 2013-54.

And as you will learn, Section 125 Cafeteria Plans are NOT available to this same group.

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