Premium reimbursement account

[Guest tonjer]

I have seen plans on the interenet whereby employers are providing a "Premium Reimbursement Account" as part of their cafeteria plan. Pursuant to one employer, "This allows you to use tax-free dollars to pay for certain tax qualified individual insurance plans that are not offered by the District. This could include expenses for individual medical plans, Medicare Part B, etc." I am confused, I thought that if the insurance was not employer-provided, the participant could not be reimbursed for those premiums? Can anybody help clarify this issue for me?

[papogi]

Revenue Ruling 61-146 and 2002-3 provide some guidance on this. This is an allowable practice.

[jpod]

The rule prohibiting reimbursement of outside insurance premiums only applies to FSAs covered by Section 125 of the Code.

[GBurns]

Rev Ruling 62-146 does not cover insurance premiums that were deducted on a pre-tax basis under a cafeteria plan.

Reve Ruling 2002-3 explicitly states that premium that was deducted on a pre-tax basis is not reimburseable.

ALL FSA's whether in a cafeteria plan or not are subject to 125.

In the post by tonjer, it is stated that "Pursuant to one employer, "This allows you to use tax-free dollars to pay for certain tax qualified individual insurance plans that are not offered by the District. This could include expenses for individual medical plans, Medicare Part B, etc."

I think that it is a misunderstanding of that employer's plan to think that that employer is reimbursing anything. The employer seems to have a simple POP cafeteria plan which allows the employees to pay (on a pre-tax basis) for supplemental plans. There is no mention of any Premium Reimbursement.

The Premium Reimbursement Accounts seen elsewhere are another matter that probably have nothing to do with the plan of the cited employer.

tonjer,

Can you cite a few of the internet sites, please? I would like to see what they are offering.

[papogi]

GBurns, while 61-146 is not this person’s exact case, it illustrates that an employer can ultimately pay for health coverage purchased from an outside source. That point alone was part of tonjer’s question. 2002-3 goes on to flesh out the concept and point out how to avoid double-dipping. While neither Rev Rul addresses tonjer’s case directly, it does show the IRS’ stance on a plan design in this realm. As far as I know, there is nothing from the IRS which explicitly addresses tonjer’s situation, at least how I read his/her post. I don’t disagree that the employer in question might only have a POP with supplemental plans, but my take is that this is a little more complicated, and that’s why 61-146 and 2002-3 might help.

[Guest Ric Joyner,CFCI]

61-146 allows the authority to deduct the individual premiums through a seperate FSA under section 125. The Health FSA is itself an insurance plan and thus cannot deduct other insurance premiums. But a seperate account sometimes called an Individual Premium FSA can be set up to handle premiums that are eligible under section 213d for reimbursement. Here is how it works. Employee Z has a cancer insurance plan that he pays at home. Then he is exposed to the flex plan from eflexgroup. eflex allows reimbursement of the plan premiums he pays at home. He would elect that monthly amount, the employer deducts that election pre-tax and then request reimbursement from eflexgroup.

Several things: Your plan document must allow for this. Also it was commonly held in some circles that a policy cannot be in anyone elses name except the employee's and this is not correct. The policy can be put in the any of the dependents name as well. Also as of last week at the ecfc conference in DC the IRS, Harry Beker, stated that spouse's insurance premiums from another employer CAN be pre-taxed through this account. It is also assumed that COBRA premiums can also be put through this health FSA as well as Medicare part B.

The authority for this is:

Harry Beker IRS and Russ Wieheimer (sp?): (202)622-6080

EBIA

ecfc.org

Ric Joyner, CFCI

eflexgroup

608-243-8277

[SLuskin]

Ric, do you have anything I can refer to about this? We have allowed pretaxing on private individual health premiums for a long time. We set up a separate reimbursement account - separate from the medical FSA. However, I also thought that the policy had to be owned by the employee or else it was ineligible participation. We had also allowed Medicare part B for a number of years, but then read a HCFA (can't remember their new name) ruling which said that an employer couldn't do anything to entice an employee to choose Medicare over the employer-sponsored plan, including the pretaxing of the Medicare Part B premiums in a Cafeteria Plan. If this is not the case, I have some clients who will be very happy. Thanks for your assistance.

[GBurns]

papogi,

The post stated "as part of their cafeteria plan" and "This allows you to use tax-free dollars to pay for certain tax qualified individual insurance plans that are not offered by the District."

I read that to mean that it was not outside purchases but pre-tax through the employer purchases.

This therefore distinguishes it from 61-146 and falls under the explanation of what should not be done a la 2002-3.

Ric,

Mr. Beker disputes ever having said anything that supports what you are advocating.

I am going to make an attempt to have one of the 2 gentlemen post a response.

Refer to 61-146 and the extensive explanation given in 2002-3 in addition to the numerous articles that have been written explaining that if the premium is deducted tax free through the cafeteria plan it is not reimburseable because there is no medical expense etc incurred by the employee.

61-146 and reimbursement of premium is only applicable if the employee pays the premium with after tax dollars.

In addition 61-146 was issued in 1961 a very long time before section 125 and logically could have nothing to do with 125 which was not yet in existence.

Rev Ruling 2002-3 refer to and distinguishes 61-146.

SLuskin,

While it is acceptable and very popular to allow pre-taxing of individual plans, especially for supplementals from AFLAC, Colonial, Allstate etc., I suggest that you get guidance on the reimbursement of that premium that was deducted on a pre-tax basis.

The sole purpose of Rev Ruling 2002-3 was to explain that it was "double dipping" to reimburse premium that was deducted on a pre-tax basis.

In other communications from you, you even indicated that your lawyer had explained to you in writing this same reason why the "double dipping" plan that had been presented to your clients did not work.

If you could reimburse premium that was deducted on a pre-tax basis there would have been no need for 3 years of negative articles, an IRS investigation and 2 Revenue Rulings.

[Guest Ric Joyner,CFCI]

George:

I am never sure what you are talking about and if you spoke to Mr. Beker today and he did not reiterate the below I doubt that you spoke to him. I have discussed with you in several venues and don't seem to get anywhere. Here goes again. BTW all FSAs are not subject to section 125. You can have a stand alone DCAP plan, GTL, POP, MERP, HRA. Most are defined as FSAs but not all are subject to section 125.

I just attended a meeting in DC where Mr. Beker and others spoke about this. I am not sure which you are referring to (HRAs or offerings in a section 125 plan) but the IRS has said that you may set up in a cafeteria plan that (reference EBIA) allows the pre tax deduction of section 213d expenses which individual health premiums are. As long as you have a seperate FSA. Perhaps it best if we both are on the phone with Beker if you did speak to him which your email implied but did not specifically say. The purpose of giving his number to the constistuents in this forum is so that they may discuss with him that individual premiums may indeed be pre-taxed. Revenue ruling 61-146 does not address section 125 but neither does section 79 (group term life) or section 129 (Dependent Care). But these are permissable cafeteria plan offerings. So it is with individual premiums. And yes they can be pre-tax.

[SLuskin]

George, the premium reimbursement accounts that we have are not for premiums which are pretaxed. That clearly is double-dipping, and we all know better than that. I was talking about outside premiums, which the employee pays with after tax dollars. Sheesh!

[Guest Ric Joyner,CFCI]

Susan:

Thanks so much for the clarification. I am just never sure where he is coming from. Also, here is my email if you would like the requested info.

rj@eflexgroup.com

[GBurns]

SLuskin,

Your post "We have allowed pretaxing on private individual health premiums for a long time. We set up a separate reimbursement account - separate from the medical FSA."

You clearly stated "pretaxing" and "reimbursement" with regard to the same premium.

Sheesh??

[GBurns]

This link has some IRS comments that are relevant.

http://www.ebia.com/weekly/articles/2003/C...af030320IRS.jsp

Sheesh!!!!!!!!!!!