Before the Affordable Care Act (ACA), employers had a wide
variety of options when it came to paying for employee coverage.
One common design, particularly for smaller employers, was to
reimburse employees on a pre-tax basis for premiums the employee
paid to purchase coverage in the individual market. These
arrangements were frequently called "105(h) plans" or
"health reimbursement arrangements" and may have also
allowed the reimbursement of other out-of-pocket medical
expenses.
The ACA has severely curtailed the situations in which these
arrangements are permissible. Essentially, an employer can
reimburse the cost of an employee's individual medical coverage
only if the arrangement is not subject to the ACA. All such
arrangements covering two currently-employed individuals
are subject to the ACA. This means that
reimbursement arrangements are generally permitted only for
retiree-only plans (i.e. plans that do not cover any current
employees) and plans that cover
