Linda

Since you are taking pre-tax contributions for dependent coverage, dependents can only be dropped under circumstances described in the 125 regs. A few (but not all) of those circumstances are qualifying events under COBRA. You have to look at the facts under both sets of rules.

I think you have to look at each group under the law and your plan documents (and consider potential amendments to your plan documents). You are not going to be able to unilaterally take an active employee (or the family member of an active employee) out of the employer’s group health plan when he or she becomes eligible for Medicare. Of course, that person might voluntarily decide to drop employer coverage when he or she enrolls in Medicare. Retirees and COBRA beneficiaries are a different story. A retiree health plan could be designed to simply bridge to Medicare eligibility. And the requirement to offer COBRA ends when a COBRA beneficiary enrolls in Medicare. I don’t have enough facts to comment on the people you mention who have coverage which should have been but wasn’t cancelled. In all situations where an individual has both Medicare and employer provided coverage, the Medicare secondary payer rules determine which program is primary.

Try 38 USC Section 1729 and the VA’s website at www.va.gov/mccr. My understanding is that when a veteran gets treatment at a VA facility for a non-service connected medical condition, the VA can bill the veteran’s group health plan for the treatment. In the past, the VA billed group health plans based on the VA’s cost of providing treatment. Due to a change in the law, the VA will start billing what it deems to be reasonable charges, in accordance with schedules developed by the VA. (On the website I think but I haven't checked.) If less than the VA’s billed charge, a plan may pay the amount it would have paid for the same treatment from a private-sector provider in the same geographic area. The VA may ask for substantiation of the lesser amount.

I have a similar issue with an employee group with fluctuating pay. (The fluctuations in pay do not necessarily reflect fluctuations in hours.) In some pay periods, an employee’s 125 contribution may exceed pay. Employees can continue coverage at the regular employee rate by making up the short fall on an after tax basis. But then there are employees who do not make up the short fall. I also rely on 1.125-2 Q&A-6(e), as per #1 above.

Jeanine, so if a person is confined on the effective date of coverage but does not have prior coverage (and assuming no preexisting condition limitation), would you figure out which part of the hospital bill is properly attributable to the period after the new coverage became effective?

I have had this issue too. It was discussed at the ABA welfare benefits conference last fall and at the time the panel (which I believe included both IRS and DOL people) did not have any answers. In fact, it looked like they had not heard the issue before. It is my nuderstanding that insurers treat the entire bill as incurred on the first day of a hospitalization, for newly enrolled individuals and for individuals leaving coverage. So, while it seems inconsistant with HIPAA, at least an individual switching from one policy to another is not left with an upaid bill. If an insurer had a newly enrolled individual with no prior coverage, I think it might have to figure out a way to split the bill based on the effective date of coverage. It would be good if we did get a rule on this so it would be handled on a consistant basis.

The IRS supposedly already knows this and is working on it but...how about 411(d)(6)? Many plan to plan transfers do not happen because of those rules.

I think OBRA ’93 added Section 609 of ERISA and was effective on enactment, 8/10/93. Section 609© requires that a child placed for adoption with an employee must be treated as the employee’s child. HIPAA repeats the requirement.

This is easy enough to fix. The employer (or its benefits attorney) can simply create a 2 or 3 page supplement to the insurance company materials. The supplement would list all of the information required by ERISA that is not in the insurance company materials. Then, the employer can distribute the insurance company materials with the supplement to employees. I think that is a relatively inexpensive way for a small employer to deal with this issue.

I agree with your analysis.

There is a closed thread on Mr. 106 on the cafeteria plan message board, from October of 1999.

HIPAA does not apply to limited scope dental and vision benefits. However, under IRS and DOL regs., a dental or vision plan IS subject to HIPAA unless (among other things) employees are charged a separate amount for participation in the dental or vision plan. So, if the employer carries the entire cost of coverage, its dental plan would be subject to HIPAA. It matters in that some dental programs have preexisting condition limitations on e.g. the replacement of missing teeth. My question is -- Have you heard anything about the IRS and DOL revising the definition of "limited scope" dental and vision benefits under DOL 2590.732(B)(3)?

This sounds like a type of cafeteria plan. The employee's choice is between a non-taxable benefit and cash.

Do you have to use a VEBA (or some other trust) with a Section 401(h) account? Let’s say retiree health benefits are self funded and the retirees pay a portion of the cost of their coverage (obviously on an after tax basis). The 401(h) disbursements and the retirees’ contributions can be pooled in a VEBA pending payment of claims. But, is there a way to do this without a VEBA (or other trust)?

You don't need an audit because there is no "fund" to audit. Whether you file one 5500 or multiple 5500s depends on your plan documentation. In other words, you could set up these benefits under one umbrella plan (e.g., 501) and file one 5500. Or, you could set a separate plan for each type of benefit (e.g., 501, 502, 503 etc.) and file multiple 5500s.

Why would there be imputed income for COBRA-like coverage if the former employee or partner are paying for the COBRA-like coverage on an after tax basis?

I think insurers don’t include all required disclosures in their certificates because the certificates are filed with the state and tailored to meet state (not federal) requirements. I think a wrap can be as simple as a listing of the ERISA requirements. (A better communication piece is certainly possible.) The certificate and summary of benefits would be incorporated by reference. I used to maintain a plain English checklist which a small employer could use to create its own wrap. The checklist was for employers who didn’t want to incur any legal fees to have something prepared for them. Since I work mainly with larger employers now (and prepare or review custom documents) I have not kept the list up to date. But, really, you could just use ERISA as a checklist/guide as to what additional infomration should be disclosed.

My suggestion is a "wrap." Develope a short supplement to the insurance company booklet. The supplement would include the employer-specific information and any other disclosures the insurer might have omitted. For example, if the Women's Health and cancer Rights explantion was no in the insurer's booklet, it could be included in a supplement.

This is one of the issues that can be negotiated when you enter into an administrative services agreement. An administrative services agreement should include an exit strategy -- administration of the claims run out, cost of this service, and the turn over of data.

I agree with your interptation of the regs. The employees (associated with the sold assets) who do not get a job with the buyer are entitled to COBRA from the buyer -- but the employees hired by the buyer are not entitled to COBRA. Still, though not required under the COBRA regs., you would think the buyer would want to credit past service toward the waiting period just to keep its new employees happy.

I agree that you could draft a plan so open enrollment is not available to a person who has lost coverage due to a failure to pay premiums. But, I think you could not avoid allowing re-enrollment for HIPAA events (such as a marriage or new dependent).

I’ve run into this issue too. I think the spouse and children are QBs. I think I heard somewhere that the unofficial IRS position is that in the event of divorce, the former spouse is entitled to elect COBRA on a spending account with a balance equal to the employee’s spending account balance -- in effect doubling the account! I don’t think any plan sponsor would go for that, do you? What do you think about splitting the account per capita?

It is not a qualifying event under COBRA but you do need to send a certification of creditable coverage under HIPAA.

I think there is a similar issue when an employee with a medical spending account gets divorced. What rights does the former spouse have to the medical spending account under COBRA? I am not aware of any official guidance. I would be interested in how people are dealing with this.

Look for a link from BenefitsLink on 11/10/99, to an article in the San Jose Mercury News titled "Happy birthday, 65-year-old worker, your health insurance has just been canceled." There is another link to an article on the same thing a couple of days earlier too. I sent the author an e-mail over a week ago but haven't heard back. If you send an e-mail too, please let me know if you get a reply.