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Self-insured medical reimbursement plan and change in deductible amounts


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I am curious if anyone else has encountered this situation:

Employer offers a self-insured medical reimbursement plan pursuant to 105(h)(6). (This plan is not part of a cafeteria plan.) The terms of the plan are relatively straightforward: Once an employee pays the first $500 toward their health insurance deductible, the employer will pay the next $1000. The employer's goal is to pay the balance of the deductible after the employee pays the first $500, so in this example the deductible is $1500.

The plan operates on a calendar year. The problem I am encountering is this: the health insurance renews on 9/1 at a higher deductible, but the deductible operates on a calendar year. In my example, the employees have a $1500 deductible for 1/1/08 - 8/31/08. Then on 9/1/08 the deductible increases to $2000 meaning the employees have an additional $500 deductible to meet starting 9/1/08 and ending on 12/31/08. On 1/1/09, the $2,000 deductible starts anew.

My problem is how to address this in the context of the plan. The only solution I can think of is to have a series of short plan years whenever the deductible increases.

I don't think changing the plan year to coincide with the renewal period will work because of the fact that the deductible starts over every calendar year.

I have received a suggestion to amend the plan to provide that the employer will pay the balance of the deductible after the first $500 is paid by the employee (the plan currently states that it will pay a specific dollar amount of the deductible).

Does anyone have a suggestion?

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I know I'm missing something here...

The deductible starts on January 1, and then on 9/1 you get no credit for amounts you paid 1/1 thru 8/31, and the deductible starts over on 9/1 for the remaining 4 months of the year..., and then on the next 1/1, the amounts paid from 9/1 thru 12/31 are disregarded, and you start over with another 8-month period of deductible payments. (Who agreed to this?)

If this is true, get a 12-month period for the deductible payments, instead of the 8- and 4-month periods, and match the insurance year with the deductible year.

Until the insurance year and the deductible year coincide, the plan will be jumping through lots of hoops to do what it is intended to do (but you knew that).

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I know I'm missing something here...

The deductible starts on January 1, and then on 9/1 you get no credit for amounts you paid 1/1 thru 8/31, and the deductible starts over on 9/1 for the remaining 4 months of the year..., and then on the next 1/1, the amounts paid from 9/1 thru 12/31 are disregarded, and you start over with another 8-month period of deductible payments. (Who agreed to this?)

If this is true, get a 12-month period for the deductible payments, instead of the 8- and 4-month periods, and match the insurance year with the deductible year.

Until the insurance year and the deductible year coincide, the plan will be jumping through lots of hoops to do what it is intended to do (but you knew that).

I realize this is confusing. Here is how it operates:

The period over which an employee must meet the deductible starts on 1/1 and ends on 12/31.

For example, the deductible for 2008 is $1500. But the employer must renew its health insurance effective 9/1/08 and decides to renew it at a higher deductible of $2000 (presumably to reduce its costs). The deductible increases from $1500 to $2000 on 9/1/08. So if an employee has paid $1500 of his deductible as of 8/31/08 and incurs additional expenses after 8/31/08, he must meet an additional $500 deductible (because the deductible is now $2000 and he has only met $1500).

On 1/1/09, the deductible period begins anew, meaning that the employee is back to square 1 as far as meeting the $2000 deductible.

I can't agree with you more about getting a deductible year that matches the insurance year that matches the plan year. Unfortunately I think that is easier said than done.

I think as far as having deductible increases in the middle of a year but having the deductible start over on the calendar year is actually pretty common. Here is a link to a related issue on the cafeteria plan context. http://benefitslink.com/boards/index.php?showtopic=25494

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Thanks, marie. Now it is clear.

If the employer wants to pay the entire remaining balance of the deductible each year after the employee pays the first $500, then I think the most workable solution is the one you posted: amend the plan to say that, instead of listing a dollar amount.

The employer could include a cap (up to a maximum of $X per year paid by the employer), but this is probably not necessary, since the employer decides the amount of the deductible at renewal time.

I also recommend that you make one attempt to get the insurance on the calendar year. Insurance companies like to spread out renewal dates, so they don't have to process everybody's renewal on January 1. (I can't blame them for that.) But someone has to get the January 1 renewal date, and your case for it is stronger than most.

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I respectfully disagree with putting the insurance on a calendar year, if you can avoid it. Carrier service goes "down the tubes" if you have a 1/1 renewal.

As noted above, you simply amend the MERP on 9/1 of each year, if necessary--or, as Marie originally suggested--once, by changing the wording of the Plan document to read in effect that the employer will pay the balance of the deductible. The MERP stays on a 1/1 anniversary to stay in sync with the deductible accounting period of the insurance carrier.

Your real challenge will come when the employer changes to an insurance carrier that has a deductible accounting period that differs from the current calendar year deductible. (Will the new carrier give "deductible met" credit, etc).

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It's my understanding that 40% of all insurance contracts in this country renew on 1/1. Carriers (and brokers, and TPAs) are slammed, so service slows to a crawl. It's tough to get anything done quickly. You have to add about 2 months to the lead time for a 1/1 renewal.

From October to February, I personally work 10-12 hour days plus weekends. Not fun. (The long hours in January and February are "cleanup hours" for what happened on 1/1).

Please note--it's not my intention to correct anyone. Simply to respectfully disagree, with a differing opinion.

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