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Ineligible because of another Plan?


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When writing our Plan Document / setting eligibility criteria, can we make the following stipulation: If you are eligible for and enroll for medical benefits through any other entity, then you will be ineligible for benefits under this medical benefits Plan.

Can we do that?

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I do not know the legal answer to this question. But let me give you a practical one. Let's assume that you can do deny coverage to others who are either eligible or covered elsewhere, how in the world would you administer it? An employee is covered elsewhere but tells you they are not, now what? How do you prove they are lying to you? Personally, if I were you I would offer a cash incentive for those who decline coverage due to coverage elsewhere. This would require you to ask for proof of coverage on a yearly basis, but is much easier.

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I do not know the legal answer to this question. But let me give you a practical one. Let's assume that you can do deny coverage to others who are either eligible or covered elsewhere, how in the world would you administer it? An employee is covered elsewhere but tells you they are not, now what? How do you prove they are lying to you? Personally, if I were you I would offer a cash incentive for those who decline coverage due to coverage elsewhere. This would require you to ask for proof of coverage on a yearly basis, but is much easier.

Well waiving the coverage means that the employee would have been eligible for the coverage... which is what we want to avoid. We would prove it because the employee is in a co-employment situation (i.e. Staffing company, Union, PEO, etc...) and we know that the employee has a plan available elsewhere.

I was really looking for the legal answer... case law, etc...

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For a formal legal answer, you should consult with your attorney. I can say that this plan design can be permissible depending on the circumstances. I'm a little unclear, however, on how your particular co-employment situation works, and would need more information to provide a more precise answer.

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I'm thinking of a client, they have a staffing agency / PEO. Part of their new marketing will be "we take on ACA liability".

However, I'm curious as to the situation where an employee waives the coverage from the staffing agency / PEO...then takes the common law employer's coverage (i.e. the place the employee is actually stationed). Or what if they waive one plan, then try to get a subsidy because the other plan is unaffordable, etc...This scenario obviously does not alleviate ACA liability IF this is the case.

This could be avoided because we can carve out eligibility with: "you are not eligible if you are eligible for benefits through another entity".

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I'm thinking of a client, they have a staffing agency / PEO. Part of their new marketing will be "we take on ACA liability".

However, I'm curious as to the situation where an employee waives the coverage from the staffing agency / PEO...then takes the common law employer's coverage (i.e. the place the employee is actually stationed). Or what if they waive one plan, then try to get a subsidy because the other plan is unaffordable, etc...This scenario obviously does not alleviate ACA liability IF this is the case.

This could be avoided because we can carve out eligibility with: "you are not eligible if you are eligible for benefits through another entity".

Thanks for the additional information. When I first read the original post, I assumed "other coverage" was through the spouse. Sorry.

This is an interesting issue. I don't see how an employee can be eligible for both medical plans, sorry. In order to be eligible for a group plan there must be an employee/employer relationship. My guess is that the relationship here is a client/PEO and that the employees belong to only one entity via the definition of an employee. So am I missing something?

A second issue that I see is the possibility of a discrimination situation. If the plan is self-funded then they are subject to Section 105 non-discrimination rules. If the group is fully-insured then they too will be subject to non-discrimination testing, which by the way has been delayed. So if the true employer structures a plan that carves out a group of employees that have access to other plans, then more than likely you will have a discrimination issue.

Does this help or make sense?

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I advise seeking competent experienced legal counsel.

The PEO can claim anything, that does not make it so. I can recall PEOs claiming that they would take on tax liability for late deposits etc. The IRS did not agree and many clients learned the hard way that the liability was theirs. Just because the state or the WC insurer recognizes a co-employer relationship, that does not mean that anyone else does.

I doubt that the employee who is almost always going to be the common law employee of the client, could ever be eligible for the PEO plan. The employee provides no service to, is not an employee of the PEO and the common law employer has not joined a MEWA for this purpose.

There was no mention of a MEWA which would raise many other issues.

Even if there was a MEWA, this should still leave questions regarding whether or not this alleviates PPACA liability.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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  • 3 weeks later...

I advise seeking competent experienced legal counsel.

The PEO can claim anything, that does not make it so. I can recall PEOs claiming that they would take on tax liability for late deposits etc. The IRS did not agree and many clients learned the hard way that the liability was theirs. Just because the state or the WC insurer recognizes a co-employer relationship, that does not mean that anyone else does.

I doubt that the employee who is almost always going to be the common law employee of the client, could ever be eligible for the PEO plan. The employee provides no service to, is not an employee of the PEO and the common law employer has not joined a MEWA for this purpose.

There was no mention of a MEWA which would raise many other issues.

Even if there was a MEWA, this should still leave questions regarding whether or not this alleviates PPACA liability.

But there is quite a bit of law about this such as IRC 414(n) dealing with benefits & leased employees. George. the employee is usually ALWAYS eligible for the PEO plan, per the guidelines of that section and its extensions.

So that is clear, the employee is eligible for the PEO plan. What is not clear is IF they will ALSO be eligible for the common law employer's plan. Because if so, then the ACA stipulation concerning plan eligibility & the various rules around that becomes interesting since they are eligible for both plans.

What I am still looking for is case law / other laws concerning dual plan eligibility.

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