Premium Reimbursement Plan ?

[Guest lmccormick]

We have section 105 health care reimbursement plan which reimburses employees for out of pocket medical expenses. We have a plan document for this benefit and it extends to all full time employees.

However, we also have an arrangement with some employees to reimburse them for individual health insurance premiums but we have no plan document as I did not believe one was required.

Can anyone confirm this for me?

Would such a plan allow for the reimbursement of "group insurance" that was not the employer's? For instance, some of our employees are covered through Tricare (Retired military) and they pay Tricare premiums to the government. It is a group plan but I do not believe their payments are pretax so would we be allowed to reimburse them for this expense as though it were an individual health care cost?

Thanks for any help/guidance.

Lisa

[jmor99]

I think you might be OK without a document, especially if you are grossing up their pay to cover the cost of their premium. If you are requiring proof each month that they had a cost for a health plan before you reimburse them that might be a problem and is beyond my knowledge. Someone else needs to kick in here.

[GBurns]

The main guidance on this issue seems to be Revenue Ruling 61-146. Also do a search for discussions related to this issue and this RR.

You can find the RR at www.taxlinks.com

As for having a written plan, even if not required it would be probably in your best interests to have everything spelled out so that there are no misunderstandings etc.

[Guest lmccormick]

The main guidance on this issue seems to be Revenue Ruling 61-146. Also do a search for discussions related to this issue and this RR.

You can find the RR at www.taxlinks.com

As for having a written plan, even if not required it would be probably in your best interests to have everything spelled out so that there are no misunderstandings etc.

I want to make it clear that we don't beef up their pay to cover health care costs. We do require proof of insurance premiums paid before we reimburse them on a tax free basis and I understand this is permissible and that proof is a requirement (makes sense). I used RR 61-146 as my guide. By the way thanks for the great link to other revenue rulings!

What I'm unsure of is can we offer this to some employees and not others and do we need a plan document? Are there any other RRs that expand on the 61-146 requirements?

If we make the premium reimbursement part of our HRA can we have multiple HRA plans for different classes of employees? For example: those who began work after 2005, or those employed overseas, or those in Florida v. those in North Carolina? Or based on what subcontract they're part of?

[GBurns]

Why do you even want to have an HRA? What will it accomplish or do for you that cannot be done otherwise, other than allowing a rollover of unused funds? I still have yet to find an HRA with rollover.

[Guest lmccormick]

Why do you even want to have an HRA? What will it accomplish or do for you that cannot be done otherwise, other than allowing a rollover of unused funds? I still have yet to find an HRA with rollover.

Sigh

I guess maybe I don't know what I want to accomplish. I want to offer the HRA as a "benefit" since we do not offer group health insurance. Hence we have a small HRA and allow the funds to rollover.

What I want to know is can I do premium reimbursement and discriminate between employees (as in offer to those who need it and not to those who don't: those with military retirement benefits or insurance through their spouse). This is what we currently do without a plan document. I was wondering if this is legal/permissible?

From what I understand of HRA that once you put it into an official plan it must be the same thing offered to everyone...no discrimination allowed. So we would use the HRA for the out of pocket expense reimbursement and the private arrangement for premiums as something separate.

It's a darned shame the information on this is not depicted clearly anywhere....like in an IRS document or a book you can buy. Hence, I'm here for advice since you all seem quite well versed on these topics.

[GBurns]

Why was it necessary to have unused funds in the HRA, then also allow rollover?

If you wanted to cover the employees out of pocket expenses, you could have accomplished this quite effectively with a standard section 105 Medical expense reimbursement plan. If any employee incurred any eligible medical expense, they would submit the claim and get reimbursed. The employer is only liable for the amount expended by the employee and the employee only gets back exactly what they spent. The empoyee is covered and the employer spends exactly what the employee needs.

Compare to your HRA where some employees get that which they did not spend, meaning the employer gave away money unnecessarliy. Some employees actually make a profit because they get money without having spent anything. What do you think the attitude is of those employees who only got back what they spent and had no "surplus"?

To the section 105 MERP you could easily now add the premium reimbursement to complete the package.

[Guest lmccormick]

Why was it necessary to have unused funds in the HRA, then also allow rollover?

If you wanted to cover the employees out of pocket expenses, you could have accomplished this quite effectively with a standard section 105 Medical expense reimbursement plan. If any employee incurred any eligible medical expense, they would submit the claim and get reimbursed. The employer is only liable for the amount expended by the employee and the employee only gets back exactly what they spent. The empoyee is covered and the employer spends exactly what the employee needs.

Compare to your HRA where some employees get that which they did not spend, meaning the employer gave away money unnecessarliy. Some employees actually make a profit because they get money without having spent anything. What do you think the attitude is of those employees who only got back what they spent and had no "surplus"?

To the section 105 MERP you could easily now add the premium reimbursement to complete the package.

Perhaps I'm not being as clear as I thought I was. Our HRA allows unused funds to rollover year to year up to a maximum of $2500. The employee doesn't "get" the funds but only has more available to them in which to cover bonefide out of pocket medical expenses.

The employee does have to spend the money in order to receive the reimbursement. I just don't feel that employee A who makes sure to claim every single eligible expense so as to use their full yearly allotment should benefit over the conservative employee who just tends to be healthier. Why not let him accrue some health reimbursement funds to help cover the cost of his kids' braces or the root canal he needs?

Does that make sense?

So do I need to have an official plan to reimburse for individual health insurance premium costs? Must the same amount be made available to each and every employee of the same type? Or can the premium reimbursement piece be something between employer and employee without being equal across the board or through an offical plan? These are the questions that I'm still have trouble getting answered. I have seen the IRS ruling that says it's legal to reimburse for personal health care premiums but where are the rules/guidelines.....is a plan document required.....can the reimbursement amount vary depending on the employee....etc...?

[GBurns]

Even if you do not need a written plan, IMHO, you should have one. Since I always advocate written documents for nearly everything, I have not bothered to look to see if some law somewhere really requires it. As long as something has to be continually explained to someone else and is subject to differring interpretations, I take the view that it should be in writing.

If I recall correctly, ERISA usually, in general, requires a written plan and an SPD for something like this even if the IRC might not.

What happens to the accumulated money when the employee terminates employment? Is the money set aside in the mean time?

If you look at Rev Ruling 61-146 or other related writings you will see that the amonut varies with the employee and the employee's coverage. There is no stated requirement or indication that each person gets the same amount, they get whatever they expended.

For any rules/regulations look at ERISA and Treas Regs 1.105.

Look at Q 10 here:

http://www.irs.gov/govt/fslg/article/0,,id=112717,00.html#10

[Guest lmccormick]

Even if you do not need a written plan, IMHO, you should have one. Since I always advocate written documents for nearly everything, I have not bothered to look to see if some law somewhere really requires it. As long as something has to be continually explained to someone else and is subject to differring interpretations, I take the view that it should be in writing.

If I recall correctly, ERISA usually, in general, requires a written plan and an SPD for something like this even if the IRC might not.

What happens to the accumulated money when the employee terminates employment? Is the money set aside in the mean time?

If you look at Rev Ruling 61-146 or other related writings you will see that the amonut varies with the employee and the employee's coverage. There is no stated requirement or indication that each person gets the same amount, they get whatever they expended.

For any rules/regulations look at ERISA and Treas Regs 1.105.

Look at Q 10 here:

http://www.irs.gov/govt/fslg/article/0,,id=112717,00.html#10

Mr. Burns,

I appreciate your efforts to help me, really I do. However I have the HRA/medical expense reimbursement piece covered. The details about what happens to the accumlated HRA funds are detailed in the plan document I created.

I am tending to believe my understanding about there being no need for a plan document with regards to premium reimbursements. I don't want to specify that we'll reimburse up to XXX dollars per employee for premiums.

Here is why:

If I say in a plan document that we will reimburse up to $5000 in individual health insurance premiums per employee then the goal of every employee will be to pick the lowest deductible possible in order to use all the money I am offering. Who wouldn't? However, $5000 may be far too little for someone who is older or less healthy and thus it would be nice to offer a greater amount of premium reimbursement to that individua.

Perhaps we should require employees to choose plans with a minimum deductible and just beef up the amount contributed to their out-of-pocket expense reimbursement amount.

Some things are better off negotiated between employer/employee and not written down. So long as we are reimbursing bonefide expenses (we are), I think we'll be fine. Believe me, I will maintain copies of these discussions and the revenue rulings in case I am ever questioned.

You see, I can't seem to get the same interpretation from any two different people so I don't feel particularly bad about being a bit confused. I've spoken with some who put together plans for a living and in many cases I know for a fact they have their facts wrong. So here I continue on in my quest for knowledge/clarification and appreciate all the input I receive here.

[GBurns]

You do not have to state an "up to" or any specific amount.

Please see the attachment.

This is an old document that I kept in my files. Although somewhat dated it stll lists most if not all the laws that relate to employee plans. The premium reimbursement plan that you are contemplating might/probably will be an ERISA governed plan in addition to being impacted by 1 or more of the laws listed. I do not know if any state law might be applicable but that is also a possiblity. Because anything you do could be subject to dispute and litigation, I think that it is only prudent to "act as if" and cover all bases. This is why I advocate having a written Plan even if you think that ERISA's requirement is not applicable. It would take too much of your time to peruse each and every possibly relevant law to see which do and which do not require a written plan and you can never be sure that every court will agree with you.

Since you have to communicate this benefit to the employees, you might as well do it as an SPD just to amke sure that you cover as much as possible. Having such an SPD puts you well on the way to the ERISA requirements, So my advice is to "act as if" ERISA is applicable and have a written document and that should cover you for any others laws that are applicable.

The problem with waiting until you get questioned, it that it is then too late to correct anything that might be wrong and the penalties can be very severe.

By the way, my personal opinion is that a premium reimbursement plan is a self-insured medical reimbursement plan under Treas Regs 1.105-11 which at 1.105-11(b)(i) Definition requires "a separate written plan". A premium reimbursement plan although to many also an accident and health plan, IMHO, does not get exempted from having a written plan under Treas Regs 1.105-5.

Plan_Document_Requirements_by_first_Choice.doc

[Guest lmccormick]

You do not have to state an "up to" or any specific amount.

Please see the attachment.

This is an old document that I kept in my files. Although somewhat dated it stll lists most if not all the laws that relate to employee plans. The premium reimbursement plan that you are contemplating might/probably will be an ERISA governed plan in addition to being impacted by 1 or more of the laws listed. I do not know if any state law might be applicable but that is also a possiblity. Because anything you do could be subject to dispute and litigation, I think that it is only prudent to "act as if" and cover all bases. This is why I advocate having a written Plan even if you think that ERISA's requirement is not applicable. It would take too much of your time to peruse each and every possibly relevant law to see which do and which do not require a written plan and you can never be sure that every court will agree with you.

Since you have to communicate this benefit to the employees, you might as well do it as an SPD just to amke sure that you cover as much as possible. Having such an SPD puts you well on the way to the ERISA requirements, So my advice is to "act as if" ERISA is applicable and have a written document and that should cover you for any others laws that are applicable.

The problem with waiting until you get questioned, it that it is then too late to correct anything that might be wrong and the penalties can be very severe.

By the way, my personal opinion is that a premium reimbursement plan is a self-insured medical reimbursement plan under Treas Regs 1.105-11 which at 1.105-11(b)(i) Definition requires "a separate written plan". A premium reimbursement plan although to many also an accident and health plan, IMHO, does not get exempted from having a written plan under Treas Regs 1.105-5.

Thank you for sharing your document. I will definately keep it for further reference and study. Could you expand on your comment "you don't have to state an up to amount?"

How would this prevent someone from submitting thousands of dollars worth of premium expenses for reimbursement if you don't state an "up to" amount?

Lisa

[GBurns]

I was responding to your statement which I thought applied only to the premium reimbursement plan being contemplated since you said that you already have the HRA with the wording that you like and you also stated "If I say in a plan document that we will reimburse up to $5000 in individual health insurance premiums per employee then the goal of every employee will be to pick the lowest deductible possible...." which could only apply to premium reimbursement not to the HRA.

An employee could not submit a claim for more than they paid since they also have to provide proof. If your plan reimburses for employee only coverage, the employee is limited to the premium for that coverage. If family is allowed you can define family and limit the dependents somwehat. The premiums for whatever coverage is limited by what is available in the market. An employee cannot pay more than the insurance company charges.

But you are correct in being aware that the employee might choose the most expensive coverage just because they will get reimbursed. However, if you educate the employees to the fact that if you terminate the reimbursement plan, or employment is terminated, then they will have to pay that expensive premium themselves or lose the coverage. They might also not be able to get other health insurance.

So if you do not want to state a maximum because you fear that they will choose expensive coverage, then you leave yourself subject to the success of the education campaign. That is probably why most would likely choose to state a limit although they do not have to.