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Non-Contributory Coverage


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#1 chloe

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Posted 09 September 2005 - 01:32 PM

I just don't know where to look to find this answer. If an employer provides health insurance to all employee on a non-contributory basis (the employer pays 100% of the premium), can the employees decline the coverage? If so, is there any discrimination issue for the employer since all employees would not be getting the same level of benefits and would also not be getting any cash in return for the rejected benefits?

(And I also want to know how to get a job with this employer!)

#2 Kirk Maldonado

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Posted 09 September 2005 - 07:10 PM

My understanding is that insurance companies often impose minimum coverage rules for health insurance contracts because of underwriting concerns about "adverse selection" (meaning that only the sick people sign up for coverage).
Kirk Maldonado

#3 QDROphile

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Posted 10 September 2005 - 10:36 AM

What do you mean by "decline the coverage"? A person can be covered but simply not submit claims. However, if they have other coverage, the coordination of benefits may force involvement of the coverage and creditors may eventually foorce th individual to submit claims for unpaid coveredmedical expenses.

Is the next step after declining coverage a demand for higher pay in lieu of the employer-paid premium? That causes problems.

If the insurance is provided through a group insurance policy, failing to cover all persons does not present problems under ERISA or the tax code unless section 125 is involved, but the terms of the policy may present problems, as noted in the answer above.

#4 Don Levit

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Posted 10 September 2005 - 05:36 PM

We are dealing with a couple of issues here.
First, the question is does this person have other coverage?
If so, does the group insurer for his employer honor that other coverage, so that the minimum participation requirement would be inapplicable?
If the insurer does not honor the other coverage, this employee's partcipation may be needed to meet the minimum participation requirements that Kirk mentioned.
If his coverage is not needed to meet the minimum participation requirements, then he can opt out of his employer's plan.

If the employee does not have other coverage, the opt out choice will probably not be available, from the insurer's standpoint.

Second, it sounds like the employee does have other coverage. If so, which policy is primary would depend on your state's coordination of benefits rules.
If you can provide more detail, I could provide some guidance based on the NAIC guidelines.

Whichever policy is secondary, I would try to discuss with the insurer, or the plan sponsor, a reduction in premium, for that insurer would have less risk.
Don Levit

#5 taylorjeff

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Posted 11 September 2005 - 03:10 PM

Hi Chloe,

When I worked for a major carrier, their rule for their fully insured groups was:

If the plan costs are 100% paid by the employer: Enrollment must include 100% of all eligible employees and (if dependent portion is also totally paid) 100% of all eligible dependents.

Their reason was that the courts would require them to provide the coverage, if at some time in the future the employee came back with a claim for benefits. It was their contention that no "fully informed" employee would turn down a benefit 100% paid for by his employer, and they (the insuror) would have to retroactively enroll the member and process the claims. While I don't know any court history where this came up, it made sense to me, and to my recollection, any employer that I discussed it with.

As Kurt said earlier, most carriers have "minimum coverage requirements". This same company's rule was:

If the plan is paid for on a contributory basis (employee contribution required): Enrollment must include 75 percent of all eligible employees, and 50% of those with dependents must select family coverage.

These requirements (for contributory groups) were usually liberalized if the member or dependent could show proof of other coverage. However, the floor minimum was 50% of the total eligible employees.

#6 AMP

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Posted 12 September 2005 - 03:34 PM

As the previous responses have noted, the mandatory coverage provision is probably imposed under the terms of the group insurance contract. Presuming that the actual group health plan "document" includes the group insurance contract (either by direct incorporation or by default because no other plan document exists), the terms of the group insurance contract become terms of the group health plan. So, the plan terms also mandate coverage for all employees.

None of ERISA's nondiscriminatory coverage rules or vesting rules apply to employee welfare benefit plans. So, nothing in ERISA prohibits the plan from requiring an employee to take noncontributory group health plan coverage.

If the plan does permit an employee to decline coverage, Code Section 125 does not require the employer to provide additional cash compensation. Code Section 125 and its nondiscrimination provisions only apply if the employee has a choice between a taxable benefit (additional compensation) or a non-taxable benefit (group health plan coverage). If the employee only has a choice between receiving a non-taxable benefit (the coverage) and not receiving the non-taxable benefit, Code Section 125 does not apply at all.

Finally, Code Section 105 does not impose any non-discrimination requirements on fully-insured group health plans. Frankly, when an employer provides fully insured group health benefits and does not permit or require any pre-tax employee contributions, the employer has a fairly free rein in deciding who is covered and who isn't (constrained only by general federal non-discrimination laws like the ADA, ADEA, etc.)