Duplicative Health Coverage -Monetary award for employees who opt out of plan

[Guest DianaM]

May an employer offer a small sum of money to an employee who opts out of the health insurance plan if proof of spousal coverage can be shown?

Would there be any problem if too many people opted out?

[papogi]

An employer can do this. Employers often take this money and put it in a Health FSA for the employee. Or the money can be in the form of increased taxable wages to the employee. If you are fully insured, you’ll have to check with the carrier regarding minimum participation, and that might be an issue. If you are self-funded with stop loss, the stop loss carrier will probably have minimum participation rules in the fine print, as well. Typically, the healthy people are the ones who opt out, so you can run into adverse selection.

[QDROphile]

Make sure you understand the rules for imputed cafeteria plans and how they affect terms in the employer's retirment plan.

[KJohnson]

Or the money can be in the form of increased taxable wages to the employee

Wouldn't you still need to have a 125 plan in place to do this? There has been some extensive discussions of the reasoning in PLR 946002 on this Board. You might want to look at this thread.

http://benefitslink.com/boards/index.php?s...t=0entry80435

[papogi]

Agreed. I am of the opinion that a 125 plan would need to be in place, as well.

[jeanine]

As a TPA, we are finding that the opposite is occurring, at least in our market. Our employer plan sponsors are increasingly exploring "mandatory working spouse" coverage provisions and covering spouses as secondary only if they have the exercised the option to pick up coverage with their employer.

[papogi]

Jeanine, we are seeing that, as well (I’m also with a TPA). Many employers (our clients) are allowing spouses of employees on the plan only if that spouse is covered primary on their own employer’s plan. This way they are only secondary on your client’s plan. DianaM’s post deals with simply getting employees off the client’s plan. The employee can opt out of your client’s plan if they show that they are covered under their spouse. If the spouse’s plan has the provision that you describe, then the employee obviously should not opt out of your client’s plan. An employer could adopt both approaches at the same time. One to turn spouses into secondary coverage whenever possible, the other to get employees off the plan and turn them into a fixed expense.