Lifetime Maximums

[Guest sidalee1]

Our plans provide for a specific lifetime maximum on "medical coverage." Can we count the premiums we as a company contribute for the medical coverage in this maximum? Is there any case law out there on this?

[Guest taylorjeff]

Lifetime Maximum refers to what the plan will pay in benefits (hospital, med/surgical, Rx, etc), commonly $1 million, $2 million, $5 million, up to "unlimited". Each covered individual has their own "lifetime max". So, in a plan with a $1 million LTM, all members of a family could each receive $1 million in benefits before their LTM is exhausted.

[Ron Snyder]

No. Lifetime maximums do not include premiums.

If your plan document and summary plan description clearly describe that for your plan premiums are part of the lifetime maximum, it might be possible. I would not wish to defend you. Can you imagine standing before a jury with a straight face and explaining that the premiums an employee paid were part of the benefits he received. Is paying for a benefit the same as receiving a benefit?

You obviously work in a right to work state under the illusion that medical benefits are something an employer does out of the good of his heart. In fact, medical benefits are part of a compensation package. If the employer did not provide the health coverage it would have to pay greater wages to recruit and keep good employees. The employees are paying for employer funded health coverage by taking lower wages.

By the way, I am an employer in a right to work state and provide health benefits because I have to.

[GBurns]

Think about it this way. You pay insurance premiums for coverage on your car, let us say $100 per month. You have no accidents for 5 years, which would be after paying $6,000 in premium. Then you have an accident and the repair estimate is $5,000. Would you think that the insurance company should make a connection between the premiums paid and the benefit payable? If you do not want the automobile insurance company to make such a connection, Why would you want either the employer or the health insurance company to make it?

The payment of premiums by the employer is not included in the wages of the employee as per IRC section 106 whereas the benefits received ( payment of medical expenses) are as per IRC section 105. The IRS makes the distinction between premium and coverage (benefits), Shouldn't you also?

[Guest sidalee1]

Thanks for the insights. As an FYI... I am not advocating that we should count premiums. Rather, my task was to find out whether we could. My opinion is that the common "meaning" if you will to lifetime maximums is the benefits provided, not the premiums. I simply have to convince management that it is not wise and/or legal to count premiums.

Thanks again.

[GBurns]

You did not say whether this was a fully insured plan or a self insured plan.

The difference between premium and lifetime maximum is easier to see in a fully insured plan.

I still wonder how an employer has any input into the maximum set by the insurance policy. Is the employer going to call the insurance company and say STOP Do not pay $50,000 for the bypass surgery, only pay $27,500 because we paid $12,500 in premiums already! I still do not get what this employer hopes to accomplish.

Then, If the benefits from the insurance coverage are treated the same as the employer paid premiums (or vice versa) , I wonder if they would BOTH have to be taken into consideration when doing testing?

If these premiums are provided under a section 125 cafeteria plan, the employee had to make a choice between cash and qualified benefits. The employee chose the qualified benefit (health insurance) so How can you reclassify the premium payment ? If the premium is treated other than allowed by section 125, does that not change the tax treatment and cause the premiums to be taxable income? Can you get the tax benefits while not adhering to the conditions of the sections of the tax code that grants those tax benefits?

[Larry M]

Usually, the benefits of the plan are the amounts paid on behalf of covered medical expenses.

In these situations, covered medical expenses are the charges for services and supplies.

The "lifetime maximum" applies to the benefits paid by the plan.

If the plan sponsor really wanted to reduce the lifetime maximum by its "premiums" paid on behalf of the individual (or his family), it could provide the maximum amount is $x minus $y times the number of years of participation in the plan....a lifetime maximum which reduces by each year of participation in the plan.

The result is that newer employees would have a bigger benefit than long term employees - - not a very good employee relations setup.