benefits permitted in a cafeteria plan

[Guest KLCarter]

I have an employer with mostly Amish/Menonite employees who all have insurance through their churches. The employer is not connected with the church and the insurance plan is not employer sponsored. Can these premiums be reimbursed under a typical cafeteria plan FSA?

[QDROphile]

Not under an FSA but the employer can adopt a plan that provides for payment or reimbursement of premiums for insurance identiifed by employees and the plan can be funded through the cafeteria plan. You will need help from someone understands how this works.

[Guest mjb]

why bother with a plan? Under rev rul 61-146 the employer can reimburse an employee who purchases individual health ins and the employee excludes the payment from income.

[QDROphile]

The employer will not need the cafeteria plan if the employer will cover the entire premium. You don't think the arrangement falls within the ERISA definition of welfare benefit plan?

[Guest mjb]

Why is this an employer plan if the employer is not purchasing the ins used to fund the benefits but allows the employees to select the coverage and merely reimburses them for the premium? How is this arrangement a plan established by the employer? What would be protected by ERISA?

[GBurns]

What would you classify this arrangement as being? A payroll scheme/procedure, an accountable plan, a non-accountable plan, a fringe benefit plan, a health or accident plan, a medical expense reimbursement plan, a welfare benefit plan or what else?

The employer while not selecting the insurance coverage will still have to verify that the coverage exists etc. The employer while not selecting the insurance coverage has to create and administer the plan/arrangement under which the reimbursements will be made. The employer's plan is the reimbursement arrangement not the insurance coverage. What will you classify this plan as being?

[Guest KLCarter]

The employer would like to offer the employees a choice of up to $X reimbursement for health insurance premiums or $X in compensation. I was envisioning a cafeteria plan wit a flexible spending account, but I see now that FSA's cannot be used to reimburse for premiums paid for other coverage.

[Guest KLCarter]

Why is this an employer plan if the employer is not purchasing the ins used to fund the benefits but allows the employees to select the coverage and merely reimburses them for the premium? How is this arrangement a plan established by the employer? What would be protected by ERISA?

We are looking for a way to make these payments non-taxable to the employee (hence the interest in a FSA). When I said the insurance plan was not employer sponsored, I meant that the employer is not involved in purchasing the coverage. Obviously, the reimbursement plan (if we could construct one) would be an employer plan.

[Guest mjb]

Why is reimbursement of ins paid by an employee an employer plan where there is no ongoing scheme of adminstration by the employer to provide benefits, pay premiums to the insurer, provide benefit documents or select the coverage? Q what would be protected under ERISA under this type of arrangement?

GB do you have cite for your statement that a reimbursement arrangement is an ERISA plan? It appears inconsistent to claim that employer reimbursement of insurance selected and paid by an employee becomes a plan administered by the employer under ERISA when DOL reg 2510.3-1(j) exempts group /group type ins programs offered by an employer through payroll deduction from regulation as an ERISA welfare plan. There is less employer involvement in the "administration" of a reimbursement plan than a payroll administration arrangement exempted by the DOL reg., e.g., no publicizing the program, no comp to employer for administrative services, etc.

[Guest nherkowitz]

There is an article on Benefits Link on this subject.

http://benefitslink.com/modperl/qa.cgi?db=qa_125&id=145

I also recall that the IRS people who make the regulations on section 125 stated that using the premium only plan for outside health insurance premiums was allowable. I believe it was at an ASPPA conference around three years ago. I believe that the logic was that because it was allowable under Health Reimbursement Arrangements, they would make it allowable under premium only plans to be consistent. The plan document would have to allow for outside insurance premiums to be allowable.

The way I see that it would work, is the employee pays the premium out of their pocket and submits the copy of the bill to the employer. The employer would deduct the premium amount on a pre-tax basis and add a non-taxable addition to pay (like a business expense reimbursement). Thus the employee would receive the premium on a tax-free basis.

[KJohnson]

This is an area that is still up in the air, in my view, as to ERISA, HIPAA portability and discrimination, state HIPAA small marekt reform, and COBRA. Here is a link that discusses some of this.

http://benefitslink.com/boards/index.php?s...=29815&hl=HIPAA

I have nothing to do with EBIA but they actually had a teleconference on this yesterday----I didn't sign up for it, but someone on the Boards may have.

=================================================================

INDIVIDUAL HEALTH INSURANCE POLICIES IN THE WORKPLACE

Avoiding Pitfalls and Limiting Employer Obligations ==================================================================

An EBIA Web Seminar

Date: April 6, 2006

Time: 1:00-2:30 pm EST (12:00 pm CST; 11:00 am MST; 10:00 am PST)

Level: Intermediate

Many employers offer employees the opportunity to obtain or be reimbursed for individual health insurance policies. With the arrival of health savings accounts this practice may increase. But just because the policies are labeled as "individual" doesn't mean that they're not subject to ERISA, COBRA, HIPAA, and other federal benefits laws. And state insurance laws will usually apply, too. How can employers influence which laws will apply and comply with those that do? Join us in this 90-minute web seminar that will focus on these tricky issues.

Register now! For one registration fee ($215), you and your co-workers can gather in one office or conference room to attend the seminar. For more information and to register, go to http://www.ebia.com/Seminars/WebSeminar/18393 .

[GBurns]

mjb

Where did I make such a statement that it was an ERISA plan?

You also still have not classified the "arrangement".

[Guest mjb]

You did chararacterize the arrangement as a plan, didnt you? Are you agreeing that there is no ERISA plan?The arrangement is a reimbursement by the employer of an employee expense which is excluded from income similar to reimbursement for employee business expenses.

Again can someone explain to me what is protected under this reimbursement by applicable laws governing health care if the employer does not select the coverage or pay the provider? Why is this any different than if the employer gave the employee additional comp which the employee used to pay for health ins, other than the tax exclusion? Mere reimbursement of ins premiums by an employer does not create an employer plan.

[Guest KLCarter]

What would you classify this arrangement as being? A payroll scheme/procedure, an accountable plan, a non-accountable plan, a fringe benefit plan, a health or accident plan, a medical expense reimbursement plan, a welfare benefit plan or what else?

I would classify this as a medical expense reimbursement plan (although they would like to be able to structure it so that employees could elect to receive cash compensation in lieu of reimbursement). Doesn't that also fall under a welfare benefit plan, which would be generally covered by ERISA (althoug maybe exempt from certain requirements)?

[GBurns]

Since when does having a plan automatically create an ERISA plan? Aren't there such things as non-ERISA plans?

[Guest mjb]

What medical expenses are being reimbursed? Why is this different than the employer paying additional comp to an employee who goes out and buys the insurance other than the tax exclusion. If you allow the employee to choose between cash comp and reimbursement of health ins then you have created constructive receipt for those employees who elect to purchase the health ins. See RR 75-241. RR 61-146 is structured to reimburse the employee solely for health ins to avoid the CR issue that the client desires.

Why wouldn't this arrangment be exempt from ERISA under DOL reg 2510-3.1(j)?

[Don Levit]

mjb:

You are not crazy.

I am with you all the way.

Although I am not so sure I am a good reference for you, according to some members of this group.

In my opinion, it is a plan, for there is ongoing administration.

But, it is not an ERISA plan, as mjb so adequately explained.

The administration of checking to make sure the policy exists is mandated by the revenue ruling cited by mjb.

Don Levit

[GBurns]

Don,

What are you agreeing with?

mjb in many posts stated:

"why bother with a plan?"

"Why is reimbursement of ins paid by an employee an employer plan "

"does not create an employer plan"

Where did mjb ever state that this was a plan or that this was not an ERISA plan?

Also, It would seem that if you are saying that "In my opinion, it is a plan, for there is ongoing administration." then you would be disagreeing with what he posted, wouldn't you?

And, If as you say " ..there is ongoing administration", wouldn't that cause the plan to be ERISA ?

[Don Levit]

George:

The employer can offer a plan that is not subject to ERISA, even an employee welfare benefit plan.

mjb cited Labor Reg. 2510.3-1 (j).

Why don't you look that up, and explain to us how this is not applicable?

These group or group type insurance progreams are expressly excluded from ERISA coverage.

They also can provide welfare benefits that are not available to the public.

Here is another instance where commercial insurers and self insured plans such as those offered by MEWAs have federal authority to provide innovative policies.

Don Levit