Employer Funded Medicare Supplement - Permissable?

[Guest RS Vatalaro]

I have a client who wishes to install a plan whereby the employer makes all the contributions. All contributions will be used to fund medical costs not covered by medicare insurance (I'm not sure if this client wants to actually purchase supplemental insurance coverage or actually pay the non-covered expenses).

He wants to do this on a tax qualified basis (deduction to employer for the contributions, tax deferred growth of earnings). I have done quite a bit of hunting to find out if this is an allowable type of plan and can't find anything on point.

Can anyone point me to a good article or give me any guidance as to what type of plan document would be needed, what code section this falls under, etc. I am a 401k person - hopefully I'm not asking a dumb question. Any help is appreciated.

[papogi]

There are several ways to allow an employer to reimburse medical costs, be they health insurance premiums or actual medical expenses. I know of no tax qualified way to do this, however. I think that's the stickler, and the reason there have been no responses to this post.

[SLuskin]

Did you mean Medicare or Medical??

If Medicare, the agency formerly known as HCFA (can't remember its new name) has said an employer can't do anything to encourage employees to drop employer-sponsored group medical coverage and take Medicare instead. That included letting the employees pretax their share of the Medicare Part B premium and also pretaxing Medicare supplemental insurance if the plan docs provide for Individual Health Insurance Premium Reimbursement (an account separate from Out of Pocket Medical Expense Reimbursement).

[Guest RS Vatalaro]

Client specifically stated to me that he wants to set aside money each year for employees and himself to supplement a Medicare program.

[Guest Compliance questioner]

SLuskin:

I hadn't heard of this:

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Could you please provide a reference?

Thanks!

[mbozek]

It has been a while since I looked at it, but I thought that under existing law employer provided health ins was the primary coverage for employees over 65 who were covered under employer group health ins. and medicare was the secondary carrier. Employees do not have the choice of dropping employer coverage in favor of mdeicare

[Mary C]

An employee can voluntarily drop employer's coverage in favor of Medicare, but the employer cannot directly or indirectly offer them an inducement to do so. Information that accompanies any Medicare Secondary Payer Act packages state that the regs (and I haven't looked at a source document to confirm) are contained in the Social Security Act, Section 1862(B), 42 C.F.R. Part 411 passed in 1990, applicable to employers with 20 or more employees. It specifically prohibits the employer from offering, subsidizing or being involved in an arrangement of a Medicare supplement policy where Medicare would normally be the secondary payer (i.e., employees over age 65 still working and eligible for the employer's plan). Even collecting a supplemental or gap policy premium and forwarding it to the carrier on behalf of the employee is prohibited. If the employer does so, the that supplement will be considered by Medicare and the IRS as a separate group health plan and will be non-conforming subjecting the employer to possible excise taxes.

[Kirk Maldonado]

I agree with Mary C.

[Guest RichelleHJ]

I am replying to an extremely old post so may not get a response but...

IF due to exhorbitant cost the employer is dropping their group health insurance plan - the Medicare Secondary Payer Issues wouldn't apply, would they? Would it then be ok to run the Medicare Supplement premiums through an "Individual POP"? Then is there any problem with there being employer contributed dollars gong towards that benefit?

Thanks for any help!