Health benefits for retired executives in self-insured plan

[Guest terryh123]

This issue keeps popping up and we keep telling clients there is a significant tax issue. Retired executives get continued health coverage not given to other retirees. If this is under a self-insured plan, the benefits, not just the premium value, is included in income under 105(h). Under 105(h) regs, retirees are tested as a separate group and this program results in discrimination in favor of highly compensated.

Possible solutions -

1. buy individual health insurance coverage for the retiree executive to take it out from under the self-insured plan.

2. Give the retiree extra compensation during the COBRA period and let the retired executive elect COBRA under the self-insured plan. At end of COBRA buy the retired executive individual health insurance.

Obvious problem. What if individual is uninsurable? Many state laws provide for some mandatory pooling arrangement in some circumstances, but this is not always comparable coverage and may be very expensive.

Anyone else dealt with this and do you have any different take or solution?