Cost sharing

[Guest jmg]

An employer maintains a group health plan and offers coverage for all US offices through national carrier.

Employer sets the cost sharing as 75/25 and all offices comply except for one.

Therefore, employee in this office contribute a lesser amount for the same coverage that other employees are paying more for.

Is this allowable?

[jpod]

I will offer the standard caveats that one must look at the plan documents and see what they say about the implementation of cost-sharing percentages, etc. Technically, it's allowable only if it is permitted by the plan.

On the other hand, if the more favorable cost-sharing is not disproportionately made available to HCEs or Key Employees, IRS won't care, and who else could complain? Therefore, if it is not exactly in line with the terms of the plan documents, why can't you just amend the plan documents, retroactively, to conform to what is being done?

[Kirk Maldonado]

jpod:

What provision in the Internal Revenue Code precludes the employer from subsidizing the premiums of the highly compensated employees more than the premiums of the other employees?

[jpod]

While I admit that I have never been able to figure out how to apply the Section 125 plan nondiscrimination rules, and I challenge anyone who claims he/she knows exactly how to do it, something tells me that a lower co-pay for HCEs may be a problem under those rules.

[mroberts]

The big question I have is why is this employee paying less than everyone else? You're probably going to have a problem unless this employee is in a class all by himself.

[Kirk Maldonado]

Jpod:

I've worked this through and subsidizing more of the premiums for highly compensated employees does not pose a problem under Section 125.

[jpod]

125© says that there is no prohibited discrimination if "qualified benefits and total benefits (or employer contributions allocable to statutory benefits and employer contributions for total benefits) do not discriminate in favor of [HCEs]." Is it your view that you can still satisfy this standard even if the co-pay is less for some or all HCEs?

I honestly don't know what 125© means, so I am curious as to how you get from A to Z.

I've advised employers that if the goal is to pay 100% of the cost of health insurance for one or more owners or other HCEs, they can do that by simply making them ineligible for the 125 plan and handling their health insurance costs outside the 125 plan. I think that works (it would have been caught by section 89, but alas . . . ). However, I don't understand how a reduced co-pay under the umbrella of a 125 plan would work.