"Insured" Medical Reimbursement Plans

[Guest mjm2950]

Does anyone have any experience, good or bad with Security Financial Life's insured medical reimbursement plan. They will not provide specimen policy in advance.

I have a group that needs to provide additional benefits for the president only ie reimburse deductibles and coinsurance etc. This plan at $200 a year and 109% of claims seems like it would work. And apparently gets around IRS discrimintation requirements because it is "insured". Therefore I can cover classes of employees and keep reimbursements non taxable.

Are there any other insurance companies that provide "insured" medical reimbursement plans?

thanks

[E as in ERISA]

I never heard of this before. I assume they provide first dollar coverage up to a small cap. They take the executives FSAs that would otherwise be subject to discrimination requirements for self-insured plans and make them insured plans that avoid the requirements.

The question that I would want answered is whether anyone has confirmed that this will be treated as "insurance" for tax purposes. I don't know that this arrangement has the requisite risk shifting and distribution. Although maybe the argument is that regular flexible spending accounts supposedly exhibit risk shifting and distribution, so these arrangements must too?

[Kirk Maldonado]

This concept is not new. Exec-u-care has been selling these policies for quite a while.

Whether they work or not depends on how the policy is written.

As to the IRS position on this issue, see TAM 8251008, August 31, 1982.

[mbozek]

How is a plan that pegs the premiums at 109% of claims a insurance policy? Reg. 1.105-11(B)(ii) provides that a plan of insurance that does not provide for the shifting of risk to an unrelated third party is deemed self insured. It seems that a premium pegged at 109% of claims does not shift risk to the insurer since the insurer is guaranteed a profit on its exposure. The employer is taking a risk that the benefits will be taxable to the executive. But if the employer is willing to gross up the employee if the benefits are considered taxable payments from discriminatory self insurance plan its ok.

[E as in ERISA]

I assume that the risk shifting and distribution is like that of an FSA: Premiums are $17.42 the first month. However, a participant can make a claim for the full $200 in that month. Then the participant's employment terminates and no further premiums are paid. So the insurance company has paid out more than it received.

[Kirk Maldonado]

That's not how they work. The total premiums due under the plan are the amount of the benefits, increased by administrative fees. There's no way that the insurance company could lose money on them, at least the way the earlier contracts were drafted.

[Guest mjm2950]

The plans are "insured" for upto $100,000 of benefits, the employer pays a premium of $250 per year per covered employee. Then the employer pays the claims incurred plus a 10% admin fee upto a maximum amount (varies on number of covered employees) but with one covered employee the companies maximum exposure is about $27,000. Then the "insurance" part kicks in to cover the balance. The company must have a minimum level of health insurance in force ie $1,000 max deductible 80% to $10,000 coinsurance. With these parameters it would be hard for the insurance company to pay out. Here are some links to two plans offered. You can download brochures.

Security Financial's SMLSelect plan:

http://www.securityfinanciallife.com/group...group_forms.htm

Jefferson Pilot's plan Exec-u-care http://www.jpfinancial.com/JPFBenefitPartn...are.htm#annprem

Thanks again for your input.