Cobra premiums - cafeteria plan - family

[Guest Roger K.]

Employee is turning 65 and will now get his insurance through Medicare. However he will stay be able to maintain his spouse on the Employers group policy under COBRA. He will continue on as an employee and have the Cobra premiums deducted from his paycheck. Do these premiums still qualify under the section 125 plan as pre-tax even though he is the employee and will not be covered under the policy?

Thanks,

Roger

[Guest chloe]

Why is his active employee coverage ending? A plan cannot terminate coverage because someone becomes eligible for or entitled to Medicare. He can voluntarily drop coverage, but the employer can't force it. If he voluntarily drops coverage, I don't believe that's a COBRA qualifying event for the family.

[Guest Roger K.]

The employee is voluntarily dropping coverage for Medicare. The employer has been told by the group insurer that the employee's wife can still be insured through COBRA.

My question is whether this deduction on the employee's paycheck qualifies for the pre-tax basis of a section 125 plan?

Why is his active employee coverage ending? A plan cannot terminate coverage because someone becomes eligible for or entitled to Medicare. He can voluntarily drop coverage, but the employer can't force it. If he voluntarily drops coverage, I don't believe that's a COBRA qualifying event for the family.

[Guest TXCafe]

I can definitely see how the employee losing health coverage (because of entitlement to Medicare) is a COBRA qualifying event for the employee's spouse. I think you could let the employee pay the COBRA premium on a pre-tax basis through salary reductions under the Cafeteria Plan. I found support (in EBIA's Cafeteria Plan manual) that a dependent who no longer qualifies as a dependent under the group health plan but does under the Cafeteria Plan can elect COBRA and the employee can have it salary reduced on a pre-tax basis under the Cafeteria Plan as long as the dependent is still a tax dependent. So I would think that would translate to a spouse that as long as they are still a spouse for tax purposes and under the definition in the Plan, the employee should be able to pay for the spouse's COBRA health coverage on a pre-tax basis. This would need to be a consistent practice though of course if it ever comes up again. That's my $0.02.