Non-participants under Section 125 receive benefit?

[Guest Diana Prewitt]

Company has a 125 self-insured medical/dental plan. Employee premiums are pre-tax. I am confused (yes I'm rather new to the benefits arena) concerning the benefit--if any--that goes to those employees that opt out of the medical/dental.

[pjkoehler]

The "cafeteria plan" is a fringe benefit arrangement that allows a participant to make a choice between cash (which can be in the form of a salary reduction) and certain other nontaxable benefits, e.g. coverage under the self-insured medical/dental plan, and to treat the cash foregone as excludible from gross income. Some companies automatically cover each employee under a basic major medical program at no cost to the employee and provide a cafeteria plan only for the purpose of permitting the employee to elect supplemental medical coverage for him or herself, or dependent coverage the employee portion of the premiums for which will be treated pre-tax. In that context, the basic coverage that the employee automatically receives is not a cafeteria plan benefit option. So you have to analyze the medical/dental coverages that the employer in your case provides at no cost to the employee, to determine if there is any coverage available outside the cafeteria plan, i.e. if the employee "opts out." The employer, of course, is under no obligation to provide any medical/dental coverage, so there may in fact be no such coverage.

[This message has been edited by PJK (edited 05-25-2000).]

[KIP KRAUS]

Diana:

Some employers, us included, give employees who opt out of medical coverage an additional amount of taxable income per month based on the amount of money the employer saves by having the employee opt out. Typically the opt out bonus is a percentage of the amount the company saves.

However, if an employee wishes to opt out of coverage, he/she must prove to us that he/she has "group" medical coverage eslewhere, tipically with the spouse's employer. Evidence can be a letter from the other employer, the other insurer, or the employee's ID card. Other coverage must be group coverage, not individual coverage, or coverage through the military.