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employee contribution discrimination?


Guest PElliot
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Guest PElliot

my employer (in California) recently switched health insurance plans. previously, we had a choice between an HMO and PPO. now, there is only one plan. benefits are the same to everybody who enrolls, however, the employee's contribution is based on what plan they were enrolled in previously with the old insurance provider. if you had the HMO before, you pay less than employee's who had the PPO before (even though the benefits are exactly the same).

can they do this? are there any discrimination laws that are being violated? how can you make different employees pay different amounts when they are receiving the same benefits? I can understand if it was based on something like date of hire, but this seems rather arbitrary. I had no idea that my plan choice for the last year was going to effect my payments for the future.

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  • 1 month later...
Guest Quicksilver
my employer (in California) recently switched health insurance plans. previously, we had a choice between an HMO and PPO. now, there is only one plan. benefits are the same to everybody who enrolls, however, the employee's contribution is based on what plan they were enrolled in previously with the old insurance provider. if you had the HMO before, you pay less than employee's who had the PPO before (even though the benefits are exactly the same).

can they do this? are there any discrimination laws that are being violated? how can you make different employees pay different amounts when they are receiving the same benefits? I can understand if it was based on something like date of hire, but this seems rather arbitrary. I had no idea that my plan choice for the last year was going to effect my payments for the future.

Not a problem unless Ca has some special rule

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  • 3 weeks later...

Not to hijack this thread but I wonder if I can broaden the question a bit. This comes up fairly frequently but I never am certain I have the full picture of potential issues. Question is basically this, can an employer who generally pays 100% of individual coverage for all employees but requires employees to pay for additional family coverage premiums strike a one-off deal with an employee (in this case the office manager) to basically pay that individual's family coverage premiums as well. Obviously, they are free to pay this individual a greater salary and could do indirectly what they are doing here but would have to gross the individual up for additional taxes if they simply paid him a larger salary to cover the additional family premiums (i.e., they want to save money by paying the family coverage premiums tax free). Are there any ERISA rules that would be violated by such an arrangement? They wouldn't do this via the cafeteria plan or flex credits, etc.--they would just pay the family premiums directly so it's not clear to me that they would be violating the Section 125 cafeteria plan rules but clearly he is receiving greater employer contributions overall.

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Question is basically this, can an employer who generally pays 100% of individual coverage for all employees but requires employees to pay for additional family coverage premiums strike a one-off deal with an employee (in this case the office manager) to basically pay that individual's family coverage premiums as well.

If the coverage is under an insured health plan, historically, there were no nondiscrimination tests that applied and it was perfectly okay. Under PPACA, however, insured plans will have to satisfy the same nondiscrimination rules (found in the Code, not ERISA) as self-insured medical plans and it is likely that this arrangement will no longer pass muster. An important caveat to this rule is that, if the plan is "grandfathered," the new nondiscrimination rules do not apply and the arrangement can continue indefinitely as long as the grandfathered status is maintained.

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Guest BellaVega

So if someone who we are considering hiring can't negotiate how much they pay for health insurance for their family? I'm guessing they can negotiate everything else except for this, such as vacation and company stock. Is sick pay off limits in negotiations also?

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So if someone who we are considering hiring can't negotiate how much they pay for health insurance for their family? I'm guessing they can negotiate everything else except for this, such as vacation and company stock. Is sick pay off limits in negotiations also?

Even before the health care act, if the person is a "highly compensated individual" in order for him or her to pay a portion of the premiums for health insurance on a pre-tax basis, the plan would have to pass the cafeteria plan nondiscrimination tests. Now, under PPACA, even if the person does not pay any portion of premium or pays it on an after-tax basis, (different) nondiscrimination rules will apply.

The tests are complicated as is the determination whether a plan is grandfathered so you should obtain expert advice. The new law doesn't change how much compensation you can pay someone, so a simpler approach may be to increase the person's salary or bonus.

PPACA does not change any rules about sick pay at all.

Does this help?

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Guest JKosciusko

The shortest answer: Yes, they can.

The middle answer: If it is on a pre-tax basis, there may be discrimination issues

The longer answer: Under health reform, there may be discrimination issues

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