health insurance?medical savings account

[Guest Pvtkirby]

We have three employees covered by a group insurance plan. The premiums will be much lower if a switch is made to individual policies. If this is done do we 1)retain non taxability of premiums to employees and 2)have the option of establishing medical savings accounts? Thank you.

[Guest G Burns]

It doesn't mattter whether you use group or individual policies Treas. Reg 1.105-1(b)is just one of many cites from 1.105 that allows either. You can also have an MSA. There should be two separate Plan Documents.

[Guest registered user]

It is true that the IRC is indifferent on whether the coverage is provided through group or individual coverage, but that can be good or bad. The good part has already been discussed.

The bad part is that under both the Internal Revenue Code and Erisa, coverage that is paid for or reimbursed by an employer is a "Group Health Plan" and thus subject to HIPAA and other laws applying to employers. 26 CFR 54.9801-1T.

Since those laws apply only to employer based policies, no insurance company that I know of has modified their individual policies or individual underwriting practices to meet the requirements placed on the employer. In other words, an employer who buys individual policies is passing up the expertise the insurer can provide which would keep the employer out of hot water.

For example, HIPAA prohibits a pre-ex "look back" greater than six months. Most individual policies will look back a year. Furthermore, an individual policy may be issue with a ridered condition,which is prohibited by HIPAA. Finally, what about the employee you hire next month who has a dependent with a health condition and therefore cannot get the same coverage for her family as her fellow workers have ? This is o.k. for individual policies, but prohibited for employer based cases. The absence of these government mandates, especially the underwriting restrictions, is in fact the major reason why individual policies have in recent years become cheaper than the small group policies. And it explains why most sellers of individual insurance ask questions about whether an employer will contribute, and then refuse sales in the case of an affirmative answer. And again, these are not just insurance company problems. The penalties would apply to the employer as well.