Compensating an Employee Who opts Out of an Employer's Health Plan

[Guest EMM118]

An employee who is eligible for Medicare wants to opt out of an employer's health plan. This really was the employee and an insurance broker's idea. Of course, the individual will sign up for some other insurance product offered by the broker. Is there ever a situation when the employer can reimburse the employee for the cost of this alternative coverage? Does it matter if the group health plan in insured or self-funded?

What if the employee was given a raise equal to the first year's cost of the alternative coverage and that increase was not increases in future years top track the increase in the cost of the alternative coverage? I recall that I read once that an employer could not offer any type of financial inducement, but is this really a financial inducement if the opt out agreement indicats that the employer is not obligated to provide remuneration?

I suspect that employers do this all the time, but there are certainly riskes associated with this. I'm a ERISA atty who, like most, does more qualified plan/non-qualified plan work. Thanks in advance for your comments.

Ed

[leevena]

Your comment about this being done often is probably correct, and usually some kind of $ deal is done. The key is how informed was the employee about the new plan and was it a better option. If the employee opted out of the group plan and into this individual plan offered by the broker and it turned out that the group plan was better, there will be a problem.

I have no specific information about the benefit designs, costs, or health of the employee, so I cannot say with certainty if this is a good idea. But I would urge caution and make sure that a full exploration of the benefit levels and implications is undertaken before this occurs.

As for your question about payment, usually best to reveiw with CPA or other financial professional.

[Guest EMM118]

I am aware of the existence of Section 1862(b)(3)© of the Social Security Act that prohibits financial incentives from being offerred either to entice an individual to elect not to enroll under a group health plan or to terminate enrollment in such coverage, but I suspect that where the employee initiates the opting out .... the employer might be on slightly more solid footing. Any thoughts? Ed

[leevena]

I am aware of the existence of Section 1862(b)(3)© of the Social Security Act that prohibits financial incentives from being offerred either to entice an individual to elect not to enroll under a group health plan or to terminate enrollment in such coverage, but I suspect that where the employee initiates the opting out .... the employer might be on slightly more solid footing. Any thoughts? Ed

It's hard to say. The employee can certainly opt out, but as you can imagine, the risk is if the employee becomes unhappy with the new coverage, blames the employer, obtains legal representation, and points to the cash payment that is being given in lieu of the coverage.

[Guest taylorjeff]

As you say, employers probably do this from time to time. You have two (that I know of) potential liabilities. One, the fine assessed if there was remuneration or inducement. Two, in the case of an audit, you (the employer) receive a Medicare Secondary Payor demand letter for claims paid by CMS. The second is an open ended liability that can add up to a lot of dollars. The employee having a medicare "supplement" won't help if CMS refuses to pay the primary benefit.

An employee who is eligible for Medicare wants to opt out of an employer's health plan. This really was the employee and an insurance broker's idea. Of course, the individual will sign up for some other insurance product offered by the broker. Is there ever a situation when the employer can reimburse the employee for the cost of this alternative coverage? Does it matter if the group health plan in insured or self-funded?

What if the employee was given a raise equal to the first year's cost of the alternative coverage and that increase was not increases in future years top track the increase in the cost of the alternative coverage? I recall that I read once that an employer could not offer any type of financial inducement, but is this really a financial inducement if the opt out agreement indicats that the employer is not obligated to provide remuneration?

I suspect that employers do this all the time, but there are certainly riskes associated with this. I'm a ERISA atty who, like most, does more qualified plan/non-qualified plan work. Thanks in advance for your comments.

Ed

[J Simmons]

Suppose an ER has an HRA under which EEs accrue $400/mo. Each EE may either direct the application of HRA dollars accrued to his or her benefit to pay for medical insurance premiums or apply for reimbursement of out-of-pocket medical expenses. ER has a group health policy that EEs can either accept or waive coverage.

EE turns 65 and becomes eligible for Medicare. EE had previously been having the entire $400/mo applied to pay for his or her coverage under the group health policy. Now EE stops the application of his or her HRA dollars, and instead directs payment of $150/mo for a Medicare supplemental policy.

Is the other $250/mo accruing to EE and available to EE either to reimburse out-of-pocket expenses or pay for other, ancillary health coverages an inducement in violation of Social Security Act section 1862(b)(3)©?