KIP KRAUS

See IRS section 105(a) as it relates to disability payments from employer paid premiums. www.irs.ustreas.gov May help

I agree with Larry M. The deductible related to salary brackets is an excellent method of applying varying deductible amounts in a comprehensive medical plan, and cost effective in reducing the overall cost of a medical plan. However, until we get people out of the HMO mentality and get back to a consumer based medical delivery system you won’t see these types of plans. Even if we can get to the PPO mentality we could use this type of system for out-of-area benefits and prescription drug plans. Start requiring deductibles and 80/20 coinsurances for Rx plans and we may see the cost of brand name drugs become more competitive. If a person has to pay 20% of $100 rather than 20% of $200 they may opt for the $20 co-payment over the $40 co-payment. It’s amazing what consumerism can to drive down the cost of an item. Pardon the soapbox oratory.

In my opinion, just my opinion, the employee cannot have a qualifying event that causes loss of coverage because he/she wasn’t covered under the plan when he/she had the reduction in hours. I have always interpreted the reduction in hours provision to mean that a person loses in force coverage do to the reduction in hours

I’ve been in the benefits business since 1975 and I have never seen a person hit the lifetime maximum. That of course doesn't mean it doesn't happen. Typically, even plans with lifetime maximums allow a person to reinstate the lifetime maximum on an annual basis if medical evidence can justify the reinstatement, but in any event they usually allow for a minimum automatic reinstatement regardless of medical evidence. Having said that, you pose an interesting question. I would be surprised if the drafters of HIPAA considered this possibility. Are you posing a hypothetical question or do you have a client in this situation?

Sounds like a whole life policy scheme where as you continue to pay premiums pre-paid death benefits continue to build up. I think these policies are designed to be paid up at some future point with no premium thereafter. Never did much in the way of individual life insurance policies, but I seem to remember these types of policies. Can’t swear to it though. I’m not sure exactly how they work but I don’t think they are part of the cash value that can be distributed before death.

Christine: You may be able to argue that because a plan paid for entirely by the insured is an excludable from offsets. If an employee is allowed to differ income to say a 401(k) plan and have that plan not offset benefits then how does the LTD carrier conclude that waived salary in lieu of all compensation going into an employer funded retirement plan would be an offset? Would 50% of waived salary going into the plan be an offset? I would also argue that even though the insurer provided its interpretation, in writing , of waived salary in lieu of compensation that if this provision is not clearly defined in the policy/certificate they should be called on it. On the other hand, I can see the carriers point. The LTD recipient could be deemed to be double dipping from their perspective. If, however your client is being paid under a “his on occupation” basis, they may not be able to offset his benefit for a position not in his regular occupation during the first 24 months or so of his disability. There may also be a “Proportional Loss Formula” based on the person’s “Indexed Pre-disability Earnings”, which would typically apply a formula offset based on how much the person earns in comparison to his “Indexed Pre-disability Earnings”. This is my shot in the dark.

I agree with GBurns. Federal legislation including ERISA does not address medical plan design or the financing thereof. The discrimination issues GBurns points out should be considered.

Christine: I am assuming from your last post that this individual is disabled and receiving disability payments already, but is going to go back to work for NFP Org.? Does the LTD carrier know what he intends to do? I’ve never read any offset provisions that seem to offset for any differed compensation plans, but I’ve never looked for them in any such circumstance. Can you e-mail of post the offset provisions written in the LTD plan? Maybe if I read them I could answer your questions.

I would say that if medical benefits are provided in any way for retirees that such information is required to be published in an SPD. All circumstances in which persons are eligible for benefits must be contained in the SPD. This is standard disclosure in an SPD according ERISA. Even if it wasn’t required one would be prudent to disclose any differences in retire medical coverage in order to avoid any misunderstandings about what retiree coverage will be. There have been several retiree lawsuits revolving around promises of benefits that were changed after retirement. It pays to make these benefits clear in your SPD and Plan document. Read the ERISA SPD contents requirements.

Christine: Typically group LTD plans do not offset LTD benefits with private disability insurance and I’m almost positive that a private pension plan would not be offset either. The LTD certificate/policy should describe the types of plans that offset benefit payments. They also typically do not offset employer pension plans.

Thanks folks.

It has always been my understanding (unless something has changed) that plan assets are not attachable by creditors so why would a plan loan that is secured by plan assets in most cases be related in any way to a personnel bankruptcy?

Jeanine is absolutely correct. The insurer needs to know what’s going on. I’ll bet they don’t know he’s doing this kind of individual selection. I’ve seen this mentality in small businesses before where the owner feels he can do what ever he wants to do, but there are laws that regulate group insurance plans and how they are set up as to eligibility and group insurers are required to underwrite their plans in accordance with these laws.

ERISA requires that any medical plan covered by ERISA must be administered so that it precludes individual selection. Therefore, if you establish eligibility you must do so in a manner that it precludes individual selection. In other words if the eligibility is full time employees who have worked for the company for I month is the eligibility you can’t require some employees to wait 2 months if they are a full time employee. This is a simplistic answer I know, but use common sense. Having said the above, most group insurers require employers to establish legitimate eligibility requirements and adhere to them. Insurers cannot allow picking and choosing in their group plans by state law. On the other hand, if the employer is providing some sort of individual (non-group) medical coverage he can do what he wants to do. more details would be helpful.

Yes it can be pre-taxed under a Section 125 plan.

I would allow it. Even though it is cosmetic if it's on a facial tooth it should be covered.

Christine: I am assuming that the COBRA participant wants to drop himself and son, but leave one person on COBRA coverage as a single participant? If this is the case, I agree with your interpretation. However, in my opinion a COBRA participant can drop coverage entirely at any time. He need only stop making payments and coverage will be canceled automatically. They also shouldn’t be covered under Section 125. Does this make sense?

I’m not sure that one could consider claims and participant health status as an asset of a medical plan. Health insurers, I’m sure, use claims data and health statistics as general data to be used in underwriting and may sell this general statistical data to third party claims administrators, and other insurers, but I doubt that it identifies any particular person or employer as the source of the data. I may be naive in assuming this but it would appear to me that identifying individual health status or an employer would cause for legal action against the insurer. Having said that, however, stop loss carriers use individual health data to lazar out plan participants that they will not cover, or will cover under specific restrictions. To me this could be a major problem HIPAA rules.

I disagree with jpod. The income exclusion was in 2001, not 2002. The mere fact that a person receives this reimbursement in the grace period for filing claims in 2002 doesn’t mean the income is being excluded in 2002. I agree with Sluskin that there would be no plan participants in 2002 therefore the plan is terminated 12/31/01. Just my opinion and that’s the way I’d proceed.

Stephen; It’s my understanding that the loan cannot be extended beyond the original two-year period based on my conversations with a Vanguard representative whom I relied on to give me this information on an employee. It makes sense to me.

It is my understanding that the effected employee has two options. 1.Make the full payment of the outstanding loan payments to bring the loan up-to-date, or 2.Have the loan re-amortized for the remainder of the two-year period at the original loan interest rate, which would make the loan payments higher. The plan administrator should be able to assist you in this matter. There are regulations that provide guidance on this issue, but i can't recall the exact regs.

It has always been my understanding that any plan that is a mandated employee coverage is not a qualified plan subject to ERISA reporting and disclosure. Fidelity bonds are applicable to ERISA qualified plans. However, in some states (New York is one) where you can self-insure Workers’ Comp. the state may require a fidelity bond or an assignment of employers assets for self-insured employers. Otherwise, if you have an insured WC plan no fidelity bond is required. By the way, how does their WC plan have assets? Is it a self-insured plan set up with some kind of trust?

Even though you have a self-insured medical plan the deductibles typically work as individual and family deductibles. If the individual deductible is $100 then any person in the family that meets the $100 is entitled to payment after meeting the individual deductible. If one of the employee’s dependents had expenses of $195 then the $95 would be payable at 80%, but you said dependents had $195. How much was met by each? The family deductible of course applies to dependents, if it didn’t what reason would there be for a family deductible? A family does not have to meet the family deductible before any one in the family gets reimbursement. Some plans allow a combination of family members to meet the family deductible. In your pan’s case for instance if three family members have deductible amounts of $80, $100, and $20 then the family deductible would be met and no other family member would have to meet a deductible. On the other hand, some plans require two or more family member to meet the total individual deductible before the family deductible is met. So in the case of your plan two family members would have to meet the $100 deductible before the family deductible is met.

Mary C: Do the states you mentioned allow it or mandate it? There is a difference.

My question first off is was the spouse being covered legally under the plan in the first place. Not many group medical plans allow for ex-spouses to be covered as a dependent. No court ordered document that I’m aware of can require a group medical plan to cover an ex-spouse if ex-spouses are otherwise not covered. Having said this, I would be extremely careful in not offering COBRA. Smells like a lawsuit to me. The way the courts are these days cutting someone off medical coverage without offering COBRA can be a risky move. If a mistake was made by the employer, the employer may want to offer COBRA and bite the bullet.