Employee Portion of Health Ins Premiums

[Guest skillsjr22]

Can an employer charge employees different amounts for the same level of health insurance?

Meaning two exempt employees both single:

Employer pays 100% for one and charges the other 50% of the premium

[J Simmons]

It depends on why the difference.

Is it due to race, religion, gender, etc. (Title VII of the 1964 Civil Rights Act)?

Is it because an employee is pregnant? (Pregnancy Discrimination Act)?

Is the one paying 50% over age 40 (ADEA)?

Is one but not both eligible for Medicare (Secondary Payor rules)?

Is it because of the health condition of one, driving a higher premium cost (HIPAA nondiscrimination)?

Is the one getting 100% paid a shareholder-employee and the other is not (disquised dividends)?

From a tax-free perspective, yes, there can be discrimination (IRC sec 106(a))

[Guest skillsjr22]

Can an employer charge employees different amounts for the same level of health insurance?

Meaning two exempt employees both single:

Employer pays 100% for one and charges the other 50% of the premium

Generally paying 100% of the health premium is a tool the owners use when recruiting new employees.

[J Simmons]

As long as no pattern develops or statement is made that might show that the real reason is one of the prohibited discriminations, the employer should be able to offer to pay 100% of the premiums for new recruits even though perhaps not all and not for existing employees that only receive 50%.

I would caution, however, that the employer paying health insurance premiums for employees amounts to an ERISA employee welfare benefit plan and that there should be an ERISA-compliant document. Those documents should detail out what will be paid by the employer for which employees.

Under the facts you've outlined, I'd do one ERISA wrap for everyone, explaining 50% is what the employer will pay and give an SPD accordingly. Then I'd do a second ERISA wrap for just those that will have 100% paid. Each person covered now or added to it would be documented through a one-page addendum to this second ERISA wrap, specifying that person by name. The SPD for this second ERISA wrap would be structured so that it had the generic info, and mention that these benefits are provided for the person named in an addendum--and then when giving the SPD to a person covered by the second ERISA wrap, attach a copy of his/her addendum page from the second ERISA wrap.

[Guest skillsjr22]

As long as no pattern develops or statement is made that might show that the real reason is one of the prohibited discriminations, the employer should be able to offer to pay 100% of the premiums for new recruits even though perhaps not all and not for existing employees that only receive 50%.

I would caution, however, that the employer paying health insurance premiums for employees amounts to an ERISA employee welfare benefit plan and that there should be an ERISA-compliant document. Those documents should detail out what will be paid by the employer for which employees.

Under the facts you've outlined, I'd do one ERISA wrap for everyone, explaining 50% is what the employer will pay and give an SPD accordingly. Then I'd do a second ERISA wrap for just those that will have 100% paid. Each person covered now or added to it would be documented through a one-page addendum to this second ERISA wrap, specifying that person by name. The SPD for this second ERISA wrap would be structured so that it had the generic info, and mention that these benefits are provided for the person named in an addendum--and then when giving the SPD to a person covered by the second ERISA wrap, attach a copy of his/her addendum page from the second ERISA wrap.

thank you very much.

[Don Levit]

J Simmons:

This is very interesting.

Are you saying that the premiums the employer charges cannot be based on the difference of any health factors, yet the portion of the premiums being paid by the employer is relatively discretionary?

Don Levit

[oriecat]

Unless I am misunderstanding, I think some of this is spelled out in the HIPAA regs.

http://www.dol.gov/dol/allcfr/Title_29/Par...CFR2590.702.htm

( c) Prohibited discrimination in premiums or contributions--(1) In general--(i) A group health plan, and a health insurance issuer offering health insurance coverage in connection with a group health plan, may not require an individual, as a condition of enrollment or continued enrollment under the plan or group health insurance coverage, to pay a premium or contribution that is greater than the premium or contribution for a similarly situated individual (described in paragraph (d) of this section) enrolled in the plan or group health insurance coverage based on any health factor that relates to the individual or a dependent of the individual.

(d)(1)...examples of classifications that, based on all the relevant facts and circumstances, may be bona fide include full-time versus part-time status, different geographic location, membership in a collective bargaining unit, date of hire, length of service, current employee versus former employee status, and different occupations.

[J Simmons]

J Simmons:

This is very interesting.

Are you saying that the premiums the employer charges cannot be based on the difference of any health factors, yet the portion of the premiums being paid by the employer is relatively discretionary?

Don Levit

Exclusion of the health insurance premiums paid by the employer from the employee's taxable income does not depend on the employer so paying the premiums for any other employees. But the employer would violate other laws if the premiums it pays leaves those with poor health condition having to pay a greater premium than those with better health (or similarly runs afoul of the other rules referred to in my March 14 post in this thread). A 'cut' on the basis of health status, against those in poor health, violates HIPAA nondiscrimination.

[Don Levit]

J Simmons:

Would it be discriminatory if the premiums charged were in direct relation to the deductible?

For example, an employer offers a plan with the same benefits for all, but deductibles vary in $1,000 increments from $1,000 to $50,000.

The employee choosing the $1,000 deductible pays a premiumn which is 60% higher than the employee choosing the $50,000 deductible.

Is this discriminatory?

Don Levit

[J Simmons]

J Simmons:

Would it be discriminatory if the premiums charged were in direct relation to the deductible?

For example, an employer offers a plan with the same benefits for all, but deductibles vary in $1,000 increments from $1,000 to $50,000.

The employee choosing the $1,000 deductible pays a premiumn which is 60% higher than the employee choosing the $50,000 deductible.

Is this discriminatory?

Don Levit

Hey, Don,

I do not think the relationship between premiums charged and deductibles, per the example you posit, would be discriminatory.

If there are differences in the amounts of the third-party insurer's premiums that are subsidized (paid) by the employer, the amount paid on behalf of each employee would yet be tax-free to that employee despite the variances. IRC 106(a).

Under HIPAA nondiscrimination (ERISA 702), no group health plan may discriminate against employees or beneficiaries based on any adverse health factors. And, a group health plan must treat uniformly all similarly situated employees.

The regulations provided that "if individuals have a choice of two or more benefit packages, individuals choosing one benefit package may be treated as one or more groups of similarly situated individuals distinct from individuals choosing another benefit package." DoL Regs 2590.702(d).

No employee that has adverse health factors and picks a certain deductible/premium combination (a 'benefit package') should be required under the group health plan to pay more of the premiums than any other employee choosing that same deductible/premium combination. But the fact that employees choosing a certain deductible/premium combination pay more than those that choose a different deductible/premium combination does not mean that similarly situated employees are not treated uniformly.

Differences based on other classifications than which option employees choose are also permitted. The test for classification is a "bona fide employment-based classification consistent with the employer's usual business practice", as determined on all relevant facts and circumstances such as whether the employer uses such classification for other, non-benefit purposes. DoL Regs 2590.702(d)(1). The quote from oriecat includes examples set forth in the regulation of such classifications that may, given all the facts and circumstances, be permissible.

It's also interesting to note that the uniform-treatment-of-similarly-situated-employees requirement does not apply to beneficiaries. With beneficiaries, it is enough that differences in treatment simply are not based on an adverse health factor. DoL Regs 2590.702(d)(2)(i)(E) and (ii).

Even if similarly situated employees are uniformly treated, the group health plan's cost-sharing requirement must not be "directed at individual participants or beneficiaries based on any health factor of the participants or beneficificiaries." DoL Regs 2590.702(b)(2)(i)(B); see also DoL Regs 2590.702(d)(3). Suppose you have a plan where the employer pays $400/month towards the premiums of all employees that choose either a low deductible/high premium option or a high deductible/low premium option. Most of those with adverse health factors opt into the low deductible/high premium option, while the healthier opt into the high deductible/low premium option. Reviewing that data, the employer then decides to cut its subsidy just for the low deductible/high premium option to $150/month, keeping it at $400/month for the high deductible/low premium option. Since such a modification diminishes the subsidy based on adverse health factors, this would likely be a HIPAA nondiscrimination violation. DoL Regs 2590.702(d)(4), Example 5.

Of course, if the differences are a pretext for any of the other discriminations mentioned in my March 14th post in this thread, that too would be problematic.

[Don Levit]

J Simmons:

Are you saying that those with different deductibles would be treated uniformly, for in essence, they have different benefit packages?

Therefore, as long as employees with the same deductible are charged the same premium, there is no discrimination?

For example, an employee chooses family coverage with a $500 deductible, and his premium is $1,000 a month.

A second employee chooses a $25,000 deductible, and his premium is $500 a month.

If the employer provides a $1,000 a month benefit, could the employee with the $25,000 deductible put $500 a month into his 401(k) without violating the discrimination rules?

Under your example of the high deductible/low premium option and the low deductible/high premium option, if the employer subsidy was the same for all, would this be discriminatory?

If the subsidy was higher for the low deductible option, would this be discriminatory?

Don Levit

[Guest Ira Hayes]

If employees contribute pre-tax toward cost of healthcare, employee contributions set by employer cannot discriminate in favor of highly compensated employees (as defined in 1986 IRC Section 125 not 414(q)). Otherwise, employer can set employee contributions as it chooses (e.g., by tiers with a by divison/subsidiary override linked to profitability) subject to collective bargaining.