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Discrimination in a Health Plan

Guest PBJ

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Employer sponsors a group medical plan. It will pay 100% of the premium for single coverage. The employee must pay the additional cost of adding a spouse or dependent. Alternatively, the employer will pay an employee $350 per quarter in cash if the employee opts-out of the health policy and enrolls in a spouse's plan. By not covering employees, the employer, of course, receives a savings.

An employee has come forward and explained that the coverage under her spouse's plan will increase on Jan. 1 and will cost $500 per quarter. Rather than paying the $150 extra per quarter (the difference between the $350 and $500) the employee is going to enroll in the employer's plan.

The employer is wondering whether it can have a policy that provides that if the premium under the spouse's plan is greater than $350 then the employer will reimburse the difference up to the amount of single coverage under its plan.

The question was raised whether this is discriminatory and unfair?

I am not convinced that this is a plan issue. This is all compensation outside of the plan. People choose cash or medical benefits. I think the question is whether the employer is willing to pay different compensation for people. ???

Is some type of plan created through this arrangement (such as a cafeteria plan except with no employee contributions)?

I am so confused, so any help would be greatly appreciated!!

Thank you.

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The employer has a cafeteria plan, or would have one if the employer complied with the applicable rules, such as having a written plan document. By not complying with such rules, the employer is creating taxable income for those who have medical benefits. I think that is the starting point for working through the questions you raise. And it sounds like getting some competent advice would be in order. If the noncompliant arrangement gets caught, it will be much more expensive than the cost of good advice.

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Your question about different the employer paying different compensation for people appears to be correct. These types of payments should be structured as compensation. However, there is are some potential issues going forward. 1. How does the employer police this and make sure the employees are truthful about the costs under the spouse plan? 2. If the employer decides to reimburse the difference up to the amount of single coverage under its plan, how much savings does the employer now realize?

Good luck.

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