OK to charge employees a varying percentage of health premiums depending on coverage?

[Scott]

An employer has an insured health plan. Employees pay their portion of the premiums through a Section 125 arrangement. The employer wants to charge employees different percentages of the premiums for different coverage options. For example, assume that the total premiums are:

Employee only: $300 per month

Employee and spouse: $400 per month

Employee and dependent child: $400 per month

Employee and family: $500 per month

The employer wants to charge employees the following:

Employee only: $200 (67% of total premium)

Employee and spouse: $300 (75%)

Employee and dependent child: $200 (50%)

Employee and family: $350 (70%)

Is there any reason why this can't be done?

[Guest eafredel]

Scott,

It is pretty typical for employers to bear a higher portion of the costs for employee coverage than for other coverage options. While the specific proposal the employer is considering is a little out of the mainstream, there are no provisions of ERISA or the Code that I can think of that are offended by the proposal. You may want to check the applicable state insurance law and consider whether employer funding of different levels of coverage at various percentages might violate any federal discrimination laws.

[mroberts]

I would definitely check with the insurance carrier as well. Most carriers will not write any business based on these contribution percentages. Adverse selection is much more likely than if the percentages were flipped and the employer was paying the greater share. A rule of thumb is that the employer needs to pay at least 50% of single coverage. Now if participation is excellent, the carrier may be willing to overlook this.