Employer-paid health plan opt-out

[Guest N Rigsby]

We currently pay 100% of employee's health care premiums. We want to provide an opt-out incentive (money into Flex Acct.) to our employees.

I have seen opt-out programs when the employee pays a portion of the premium. What about when the employer pays 100%?

[SLuskin]

Those are actually pretty easy to design in a Cafeteria Plan. You have to decide if you want to give dollar for dollar - not the best idea - or some kind of reduction, like 75%. You also have to decide if you want to require some sort of proof of other coverage before you let someone opt out. Then, you have to decide if you want to allow that money to go to the medical FSA only, or if daycare and cash are options.

[papogi]

I agree with SLuskin. I just want to reiterate the fact that this can only be done in a Cafeteria Plan/Section 125 plan. Whether the plan is funded by employee contributions or nonelective employer contributions does not really matter. If you tried to do this outside a Cafeteria Plan, you would run into constructive receipt issues.

[Guest PDDeBoy]

You have to be careful that you don't accidentally create adverse selection for your medical plan. You also have to be careful that you do not fall below any participation requirements your insurance carrier or your reinsurer mandates. Chances are that your company policy (paying 100%) and your insurance policy language are one in the same. An insurance carrier will not allow individuals to "waive" coverage unless you also change the contract with them from a non-contributory one to a contributory policy.

A way to avoid some of the adverse selection is to allow for the medical opt out ONLY if they can show proof of other coverage.