Taxable "medical" benefits (cafeteria plan bb too)

[Guest AEA]

Scenario - Employer has unsigned cafeteria plan that allows for pre-tax premiums and medical reimbursement. At some point in the last few years, the employer stopped offering health insurance and began paying (as compensation) each employee $375 per month to go out and get their own insurance. The payment is listed on the paystubs as "medical", and appears to be taxed and subject to FICA, FUTA, etc. The employees REALLY use the med reimb portion of the cafeteria plan. I am now trying to clean up the cafeteria plan and am not sure how to deal with this "benefit".

As is, it doesn't appear to fit anywhere within the cafeteria plan universe. However, I would like to try to do something with this.

I've considered an HRA - this would limit the use of the $$ to medical expenses, but that seemed to be the purpose of the payment in the first place. On the upside, it appears that the payments would become pre-tax and the employer would avoid FICA and FUTA. Could these $$s be used to pay premiums for an individual policy? Am I creating any HIPPA or COBRA issues?

Any other suggestions? Do I let sleeping dogs lie and just redraft the cafeteria plan to offer med reimb only?

Thanks!