Employer contributions to deductible

[Guest Wislndixie]

I have an employer that currently has a 125 plan with Flexibile Spending acccounts. He is renewing his health insurance plan and wants to move to a $500 deductible from a $250 deductible. His premium savings will be fairly large by moving to the higer deductible. But, in order not to "hurt" the employees, he wants to make an employer contribution up to $250 to cover the difference so the employee still only has $250 out of pocket. He knows that he must make it available to everyone but has been told that proabably less than 10% of the employees will use the $250 he contributes and he can specifiy in the plan document that the unused contributions will be returned to the employer at the end of the year. He envisions saving a bundle on the reduced premium he has to pay for the higher deductible and at the same time, not spending that much money covering the extra $250 deductible. My questions are: 1..Can this be done within a 125 plan. 2. What are the mechanics of it? 3. Does the employer have to make a contribution each payroll period towards his annual election? This sounds like a very good deal if it can be done. Would like everyone's opinion..Thanks

[GBurns]

1. I do not see any way of doing this under 125, it has to be done under 105 etc.

2. The mechanics vary with the plan design and more info would be needed.

3. No in a properly designed plan he would not have to make the contribution each payroll. What are your thoughts why the payroll has become your focus?

I also do not think that there will be a way to return unused contributions to the employer. I also do not agree with the 10% useage.

It can be a good deal if done properly AND IF the circumstances are right.

I suspect that there is much more to this plan design than you are letting on. It is dangerous to get answers to pieces of a plan when there is the danger that the pieces will not fit when you put them together. Each piece might be right but the combination might be wrong.

What plan did you get this idea from?

[Guest Wislndixie]

Thanks for your reply. The scenario I gave came from the MHM (Mayer-Hoffman-McCann) Summer Section 125 newsletter. In their newsletter they describe the scenario of moving to a higher deductible and letting the employer make contributions as a means of using a 125 plan to help curb the high cost of health insurance. I called their office for further explanation and no-one I talked to could find or had seen the summer newsletter. They finally had someone call me and I had to fax them a copy of the newsletter in order to get a response. One of the reps did respond and said it was an easy process and could be done within a Section 125.the gentleman I talked to was very vague and wouldn't give specifics except to say that the employer would make contributions just like the employee does to the spending account on a per pay period basis. The money for the deductible would be reimbursed as it applies to the deductible and as receipts are submitted just like any other expense. And without being specific, the employer could recoup his money if the employee did not spend it..I do have an employer that I showed this too that is very interested in doing this but am hesitant until I find more specific info on how it can be done..any help or guidance would be appreciated.

Wisln

[Guest Matt J]

We have designed those types of plans here. I do not see a problem with the employer contributing the $250 to the Health FSA plan and then the employee would just need to submit claims for the reimbursement. The employer contribution should be the same for everyone to make sure there is no discrimination issues.

We have also designed plans recently to offer an incentive of an Employer Health FSA contribution to "buy down" to the higher deductible plan.

[GBurns]

It was asked if this could be done under a 125 plan.

Are you saying that you have designed 125 plans with:

1. Funding on an ad hoc basis, where the employer contributions are not made at any specific time but on an irregular basis.

2. Unused contributions revert to the employer not the plan.

3. All of this is done under a 125 plan.

[Guest Matt J]

We have designed them within the cafeteria plan approach. It would be at annual enrollment time that the employer contribution is set at a flat dollar based on the employee's election. The employer contribution amounts are defined based on the medical election.

Ex. If I elect the $1000 PPO plan, the employer will contribute $500 to the Health FSA. If I elect the $250 PPO plan, the employer will not contribute to the Health FSA. This serves as an incentive to have employees elect the higher deductible plan and help reduce costs for the employer. We try to price the higher deductible plan to help the employer and employee save money.

This amount would then be contributed to the Health FSA in a lump sum at the beginning of the year or per pay period. If the employee does not "use" the entire employer contribution, the monies would revert back to the plan or to the employer to offset the administrative fees.