Individual policies through a cafeteria plan- where do you draw the li

[Guest Compliance questioner]

For those of you who allow individual policies to be run through a Section 125 plan...

I know that the policy must be owned by/purchased by the plan participant. And in reading Harry Becker's comments from 1995 (awhile ago, I know), it sounds like a plan participant can purchase a policy for a dependent. But where to you draw the line, because couldn't one argue that they bought the disability policy,AD&D policy, etc. for their spouse? It seems like a slippery slope. How have any of you who work with these plans deal with this?

I have a case right now where an EE pays a "parental" fee for TEFRA in MN for insurance on his ausistic minor son. It is a form of Medicaid, and the parents must pay a fee each month for this insurance. I believe that this can be run through the IND account, esp. since Medicare premiums can) but I'm concerned about how to tighten the definition of ownership of a policy. Anyone else dealing with this?

:confused:

[Bob R]

Unfortunately, there isn't much out there on individual policies being run through a cafeteria plan. I think the issue you are getting it has to do with a general cafeteria plan requirement. A cafeteria plan must be for employees although it's possible for others to benefit from coverage obtained through a cafeteria plan. The distinction is that it's probably not O.K. to have an individual policy that only covers a dependent. But it is O.K. to have an individual policy that covers both the employee and the dependent.

Of course there are other issues that come up by paying for individual policies through a cafeteria plan. One of the tougher issues is the application of HIPAA. If 2 employees elect the same individual coveage and pay for it through the cafeteria plan, it's now employer provided coverage. And, under HIPAA the insurance company wouldn't be able to deny a third employee who wants the coverage (e.g., even if the employee had cancer). That's why some Blue Cross companies won't issue individual policies where the premium is being paid through the employer.