cafeteria plan for individual health policies

[Guest Jennyb473]

My brother has a small business that is starting to offer health insurance to his employees. They cannot qualify for a group plan because they don't have enough participation. However, as the employer, he would still like to pay for half of the premiums for his employees and have the other half paid on a pretax basis by the employees. Can he do this thru a cafeteria plan? We can't find anything saying one way or another. Since it is individual policies can he still pay for part of it and have the rest pretax for his employees?

[J Simmons]

Individual policies typically are less expensive these days because they do not have the 'bells and whistles' that certain federal laws require of 'group health plans', such as group policies.

A very bare-bones premium-only cafeteria plan may be accomplished without necessarily causing the arrangement to be a 'group health plan' for purposes of HIPAA, Pregnancy Discrimination Act, COBRA, etc. However, it cannot be accomplished, in my opinion, if the employer is bearing any of the cost of the premium. (There are other requirements to avoid those federal law mandates for group health plans, but the employer bearing any of the cost of the premium will wire you into those federal mandate laws applying.)

[Guest Jennyb473]

that is what we are afraid of. He couldn't get the insurance company to bill all of the policies to him so they got a List Bill form but signing it says the employer will not be paying any of the premium. They may look into another group plan and see if they can go back that direction or he may think about increasing the employees compensation by the amount he wants to contribute and then have them pay the full premium thru pretax deduction.

thanks!

[J Simmons]

that is what we are afraid of. He couldn't get the insurance company to bill all of the policies to him so they got a List Bill form but signing it says the employer will not be paying any of the premium.

Rather than any sort of list billing arrangement, even one without such a clause, you might find that it would be better to let employee pay the insurance company directly and then with proof of such payment, your brother would reimburse (not subject to payroll) the employee for the premium paid. See Rev Rul 61-146. Not only will doing it mechanically this way rather than through a list billing preserve the tax savings on the premiums, but also if the insurance coverage is dropped due to late premium payment, that is not something for which the employee can then point a finger at your brother.

They may look into another group plan and see if they can go back that direction or he may think about increasing the employees compensation by the amount he wants to contribute and then have them pay the full premium thru pretax deduction.

Each employee who doesn't want insurance coverage would be able to pocket (after-tax) the amount that would have been your brother's 1/2 of the premium that instead was added to the employee's payroll in order to do it this way. But that is, after all, the point: getting your brother as far out of the loop as possible when it comes to employees' insurance so that he is not sponsoring a 'group health plan' subject to all those federal mandates that apply to group policies and drive up the premium cost of coverage.