Discriminatory Health Insurance Plans

[Guest Grumpy456]

I am very confused about the different kinds of employer-sponsored health insurance and what discrimination rules, if any, apply to them.

For example, assume CheapCo, Inc. employs 500 people. Consider the following two scenarios:

1. CheapCo, Inc. purchases group health insurance coverage from Anthem Blue Cross Blue Shield which covers only a few of its employees--perhaps only the "key executives". It is my understanding that CheapCo, Inc. can do this without violating any discrimination rules imposed by the Internal Revenue Code.

2. CheapCo, Inc. instead, decides to self-insure these same few employees--again, perhaps only the "key executives". In this case, I've been told that CheapCo's plan might violate the Code's discrimination rules.

Why should the tax code approve of the first scenario, but not the second (assuming my conclusions are true)?

Also, what is the difference, if any, between a "self-insured medical reimbursement plan" and a "self-insured medical plan"? While Section 105(h) applies to self-insured medical reimbursement plans, does any Section of the Code apply to self-insured medical plans where there is no reimbursement (i.e., a plan in which the medical provider sends the bill to the plan, not the participant)?

Thanks so much for your help!!!

[Bob R]

Looks like no replied to your question -

Your assumptions on the 2 examples are correct. Why is there different treatment of insured vs. self-funded plans under the Code. The only explanation I have is "good lobbyists". TRA '86 enacted Code Section 89 that was meant to address discrimination of insured plans. It was soon repealed.

There's not much between a self-insured plan vs. a self-funded reimbursement plan. I think the latter is used to describe those plans where there is a dollar limit and the plan covers any expense not covered by insurance whereas self-insured plan is used to describe a self-funded plan that resembles your typical insured plan (deductibles, co-pays, etc.). All of these are covered by 105(h) regardless of the term you use.