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» Supplementing Fertility and Mental Health Benefits with Section 105 Plans or HRAs

February 9, 2022


Section 105 of the Internal Revenue Code regulates health benefits which may provide tax-free reimbursement of medical and health expenses to members.

Employers can use Section 105 plans in numerous ways to provide a benefit to employees. Most people know of these plans by the name Health Reimbursement Arrangement (HRA). We’ve previously discussed the opportunities for a Fertility HRA, this will expand that discussion to other possible uses.

Let’s do a quick technical discussion then dive into some creative applications for HRAs in an employee benefits plan.

Click here for a complimentary discussion about a special-use HRA for your organization

Technical Discussion: What is an HRA or Health Reimbursement Account?

Gross income for an employee typically includes compensation for services such as fees and commissions, as well as fringe benefits and similar items. Section 105 provides an exception to this rule which otherwise requires payments are to be included in gross income.

If the employee is paid amounts, directly or indirectly, to reimburse them for medical expenses whether for themselves, their spouse, or their dependents, then these payments may be excluded from gross income.

Medical expenses include any amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or “for the purpose of affecting any structure or function of the body.”

This includes medicines and drugs purchased without a doctor’s prescription but does not include dietary supplements that are merely beneficial to one’s general health.

Using an HRA in the Real World

So you’ve decided you want to offer some kind of HRA to your employees.

First, you need to work with your benefits team to formally establish your HRA through a plan document. Contact us if you have questions about going about this. Most vendors of FSAs, HSAs, HRAs, and more can do this as part of their service offering.

Second, decide the monthly or annual amount available to each employee during the plan year (or another time period such as a lifetime limit) and which expenses exactly will be covered.

This plan is a pay-as-you-go benefit for employees, which means the employer doesn’t pay anything unless and until employees file a reimbursement claim for a covered expense.

In practice, this is a miniature Self-Funded Health Plan. The employer is paying for medical expenses as incurred, rather than pre-funding with premiums to an insurance company. The only difference is the employee must complete a reimbursement, rather than utilizing a TPA and the health provider filing a claim.

An HRA can be either be a replacement for offering health benefits or a supplement to an existing group health plan. There are more technical discussions around HRA and health plan enrollment beyond the scope of this article – schedule time with a consultant for a more in-depth conversation around your particular needs.

Examples of HRAs include:

  • Health Reimbursement Arrangement (HRA)
  • Health Reimbursement Account
  • Health Reimbursement Plan
  • Individual Coverage HRA (ICHRA)
  • Qualified Small Employer HRA (QSEHRA)
  • Medical Expense Reimbursement Plan
  • Medical Reimbursement Plan

Creative Uses for an HRA

You can set up an HRA to generally cover any eligible medical expense listed in IRS Publication 502. You can also narrow the range of covered expenses via your plan document.

If we look at the current landscape of employee benefits and employee health spending trends through the lens of recruiting and retaining key talent, we can formulate some ideas for special purpose HRAs.

In today’s benefits world, we are seeing more and more companies cropping up to solve issues of accessibility and affordability in particular areas of need, including mental health and fertility services.

You may be thinking “Aren’t those supposed to be covered by group health plans?” and you aren’t wrong. But there are major gaps in current commercial insurance plans which leave employees either without care or encountering major issues with accessibility and affordability.

Mental Health HRA

Mental health is one of the 10 essential benefits as outlined in the ACA. However, it is an area with pervasive issues around network adequacy, affordability, and provider availability. Kaiser Family Foundation has an interactive chart outlining Health Professional Shortage Areas (HPSAs) for mental health and the summary is, we aren’t doing well here.

To address the out-of-pocket spending and risk of deferred or avoided care, employers can adopt a Mental Health HRA which reimburses employees for the cost of mental health services not covered by their health plan. This can be designed as a flat dollar benefit in a year, over the employee’s lifetime, or on a per-visit basis with a maximum number of visits. There are many ways to design this and align the terms of the HRA with the existing group health plan.

Fertility HRA

Fertility is another glaring area in employee benefits today. According to KFF, most patients pay out of pocket for fertility treatment. Given the typical cost is well over $10,000, fertility care is out of reach for many people.

And this isn’t a niche issue. Many people in fact may need fertility assistance, as men and women both can suffer from infertility and fertility issues, including LGBTQ people and single people who want children. It’s estimated that 10% of women or their partners have received medical help in becoming pregnant. Throw in the cost barrier cited above, and the need for fertility services is even higher than the 10% who have already received treatment.

While some states do require private insurers to cover some fertility treatment, significant gaps can remain. In California, for example, insurers’ fertility benefits are usually very lacking and quite expensive. Coupled with their typical burden of proof of need and documentation of infertility, this can be a non-starter for most employers.

Oftentimes, benefits are very strictly defined and include certain gatekeepers. The definition of infertility versus fertility is one such area of concern and may impede employees from receiving timely fertility services. In Hawaii, someone with infertility can receive IVF only after five years of experiencing infertility. And surrogacy is often not covered in any way by insurance.

In light of these gaps, an employer may implement a Fertility Services HRA which reimburses employees for fertility services as however defined in the plan document. This could be a flat dollar amount for services such as fertility advice, testing, drugs, artificial methods such as IVF, cryogenic preservation of genetic material, and other services. Remember, the employer creates the plan document and decides what is and isn’t covered.

By working with your trusted benefits professional, this process can be simplified and you simply need to decide on goals and a total budget for the program. Your benefits advisor and vendors will take care of everything else so that your employees benefit from a high-value health plan designed to align with your organization’s values and principles.

Click here for a complimentary discussion about a special-use HRA for your organization


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