This is Fishy...but what is it?

[sloble@crowleyfleck.com]

Employer has an arrangement whereby it reimburses employees for a portion of their group health plan insurance deductible ($400 of $500 for individual and $800 of $1000 for family) once its met. This arrangement is not treated as an ERISA plan, its paid from general assets, there is no plan doc, no filing, it is separate from any other plan, it is not taxed as income, it's "just a leettle something they do for their employees..." Is this a health reimbursement plan? I think its an ERISA arrangement but what type? There is no account--the funds are just paid from gen assets if the employee meets the deductible and submits proof to the company.

ANY thoughts appreciated.

[Guest b2kates]

it sounds like an undocumented version of a section 105(h) medical reimbursement plan.

[MoJo]

I dealt with one of those... I agree its an ERISA plan (scheme or program - or whatever the phrase is in ERISA). After haggling with the IRS, and filing 12 years worth of 5500's (there was a "savings account funding mechanism), they let us shut it down without further repurcussions....

[E as in ERISA]

They can't have it be nontaxable unless they fit it into an exclusion -- such as medical....

[GBurns]

b2kates,

What is a "section 105(h) medical reimbursement plan"?

AshleyL,

It is just a simple Medical Expense Reimbursement Plan as per Treas Regs 1.105-5 and 1.105-11. The IRS does not require that the Plan be in writing however, it is an ERISA plan and the DoL requires that it be in writing. Common prudence should dictate that any such arrangement be reduced to writing so as to eliminate confusion and ambiguity etc.

It is an ERISA Plan because of the type of benefits provided, the administration required and the amount of employer involvement etc.

[Guest llerner]

Yes, it sounds like HRA (health reimbursement arrangement) Though recommended there is no plan doc requirement and funds can be paid out of general assets; they don't need to held in trust like cafeteria plans or HSA.

[sloble@crowleyfleck.com]

Thanks all. GBurns--I read the regs you referenced and I see that it fits in to both definitions: accident and health plan and self insured medical reimbursement plan. Thanks. Here's my idea for remedying the situation--I would appreciate comments from you and any of you:

"Merge" this arrangment into the existing Medical Reimbursment Plan, which at this point is funded exclusively with employee contributions through the cafeteria plan. I would add a section to the description of the Medical Reimbursement Plan indicating that Employer will make the $400/$800 contribution to participants' medical reimbursement accounts to reimburse employees for a portion of their deductible provided that it is met during the Plan Year.

My thought is that this would take care of the plan doc, filing, ERISA, GHP etc requirements going forward. We'll need to figure out what to do about past filings--probably we cant claim that its always been part of the cafeteria plan...

[GBurns]

I suggest that you do not "Merge". The Plans should be separate.

FSAs have a "use it or lose it" feature and would require advance funding. This advance funding along with universal availability of funds creates a complication of administering the 2 different sources of funds; presents ordering problems and confusion (which funds gets used first); has difficulties in communication to employees. These forfeitures should revert to the Plan and not the employer's general assets. As a result a "Merge" would cost much more than is necessary.

105 MERPS are usually operated on a "pay as you go" basis. If there are no claims the employer makes no payments. If there are claims the employee gets made whole up to the agreed limit. Everyone gets covered as needed.

Keeping them separate keeps the employees funds clearly segregated and eliminates confusion.

Additionally, FSAs under section 125 have many vague restrictions and the main guidance comes from the merely Proposed Regulations the validity of which even some Courts have questioned. Being Proposed for so long could also lead to changes or withdrawal.

Whereas section 105 has has very minor changes in almost 20 years and have clearly established Regs and case law.

Section 105 means less restrictions, clearer guidance, easier understanding and more profit.

Re ERISA etc,

Give me a few days to think about the necessity of reporting. I know of many that file no 5500, but I do not remember the logic. In any case, even if you have to file, it is onlya few lines other than the name and address section.

A separate PD would be cheaper and easier to change than a "Merge" PD.

There are no GHP requirements and HIPAA that I can think of.

[sloble@crowleyfleck.com]

GBurns: Thanks for your valuable feedback. I've done some more looking and I don't think we need to worry about filing because we have under 100 participants and benefits are from general assets. I don't think we have anything to "correct" in terms of past mistakes... but I plan to put together a simple plan document and SPD.

Why don't you think the MERP is subject to COBRA? (I'm not worried about HIPAA because there is no PHI passing) I would think an individual should be able to elect COBRA to continue coverage for deductible reimbursement along with the major medical plan. Your thoughts are appreciated.

[GBurns]

I could not find where I ever said that a MERP was not subject to COBRA although I could have.

A MERP could be exempted from COBRA depending on the plan design although in general most plans should be subject to COBRA.

For example, would a Plan whose PD restricted reimbursements to the deductibles of certain named health insurance coverages (HMO1, PPO1, PPO 2 etc) be subject to COBRA if the COBRA plans are none of the named coverages? Active employees participate in HMO1, PPO1 and PPO2 whereas COBRA electees have some other named plans (PPO3) even though the coverage is identical.

However, that being said, it would be a simpler issue and not of significant cost to allow COBRA coverage.

[actuarysmith]

This client should find a local chapter of PA- (Plans Anonymous)

The first step on the road to recovery is to admit you have a plan........... lol