Does anyone have experience in offering a cash payment if not electing coverage?

[Guest fyaym2000]

We have a client that is considering offering a defined contribution to employees who do not elect the medical insurance through the group. Has anyone ran across this in the past?

Could the company require proof of coverage?

How does this affect the group plan as far as adverse selection and what would be the ramifications if someone develops a condition and loses the individual coverage?

Any help is appreciated.

[Don Levit]

The employer can certainly provide an increase in salary, if an employee already has the medical benefits through his own policy.

There really should not be any adverse selection. The insurance company and the employer will (or should) verify that coverage is available. The existince of an individual policy will not count against the mandatory participation % the insurance company will require.

Why would the individual policy partcipant lose his coverage if he develops a condition?

I understand all individual policies must be guaranteed renewable.

Don Levit

[Kirk Maldonado]

Wouldn't this be a cafeteria plan subject to section 125?

[Guest cindy27]

We have a certain $ amount that is contributed by the Company into a flexible spending account if the employee 'opts out' of the insurance plan. The ee then uses this money for reimbursement of medical expenses not paid for under insurance. This falls under IRS guidelines and is not taxable to the employee. You should require proof of other coverage. If the ee needs to enroll in the health plan mid-year due to a benefit event change, the opt out amount is prorated over the months not on the benefit plan.

[mbozek]

There are three ways to provide additional comp in lieu of health benefits:

1. pay additional cash to a person who is eligible for a 125 plan and declines to contribute.

2. Pay additional cash to an employee who is not eligible to participate in the 125 plan ,e,g, because he is covered by other ins.

3. If the plan does not have a 125 plan but the er pays 100% for health ins, the employer can pay additonal cash to a new employee who agrees not to participate in the health plan as a condition of employment.

The employer could also reimburse the employee for the premium the employee pays for the health ins. on a non taxable basis under Rev. Rul 61-146 instead of increasing the ee's taxable compensation.