Employer-paid health insurance can be discriminatory as I recall

[katieinny]

A small employer pays for health insurance for several of his employees. Most only need single coverage, but one employee needs to have family coverage. He might not want to pay for family coverage for everybody though when the time comes. I think the employer can purchase health insurance for some, but not all, of his employees, and I think he can pay for the extra coverage in the case of the employee who needs a family plan without being in trouble for discrimination. But then I started wondering if any of that changed under Health Care Reform. I'm not talking about a welfare benefit type plan -- just an employer who's willing to purchase health insurance for some of his employees. I would appreciate your comments.

[Ron Snyder]

I'm not talking about a welfare benefit type plan -- just an employer who's willing to purchase health insurance for some of his employees.

Isn't there a disconnect here? Purchasing health insurance for employees is a welfare benefit plan covered under ERISA and the Internal Revenue Code.

If the policies are policies purchased individually, the employer may pay the premiums but they will be declared as income to the employee (who may also be able to take a personal deduction for all or a portion thereof). It will also still be subject to pre-existing conditions notwithstanding health care reform.

If the policies are purchased as small group coverage (1 or 2-10 employees, depending upon your state), the insurance company will require non-discrimination based upon its rules. There will be no exclusion of pre-existing conditions.

[J Simmons]

I'm not talking about a welfare benefit type plan -- just an employer who's willing to purchase health insurance for some of his employees.

Isn't there a disconnect here? Purchasing health insurance for employees is a welfare benefit plan covered under ERISA and the Internal Revenue Code.

If the policies are policies purchased individually, the employer may pay the premiums but they will be declared as income to the employee (who may also be able to take a personal deduction for all or a portion thereof). It will also still be subject to pre-existing conditions notwithstanding health care reform.

If the policies are purchased as small group coverage (1 or 2-10 employees, depending upon your state), the insurance company will require non-discrimination based upon its rules. There will be no exclusion of pre-existing conditions.

I agree with vebaguru if the ER pays the premiums it will be a welfare benefit plan covered by ERISA. ERISA does not however impose a nondiscrimination requirement. If the coverage purchased is through individual policies that impose pre-existing conditions, the group health plan might be in violation of HIPAA special enrollment rights. Under current Code section 106(a), the value of the coverage would be excluded from the employee's taxable income and under section 162 deductible by the ER (to the extent it does not cause total compensation package to be unreasonable). This is so whether such coverage is provided for all, there is varying coverage or only the highly compensated employees are recipients. There is currently no nondiscrimination rule.

If the group health plan is subject to all of the new Health Care Reform (i.e., is not grandfathered passed portions), then there is a new nondiscrimination requirement imposed for group health coverages. It was supposed to take effect 1/1/2011, but it's implementation has been delayed by the IRS pending further notification (when the IRS gets a few rules sorted out).

If an ER keeps its involvement down to a very minor level and lets EEs choose their individual coverage and pay for 100% of the premium through a bare bones cafeteria plan (IRC section 125), then it will not be either a welfare benefit plan for ERISA purposes nor a group health plan for HIPAA and new Health Care Reform purposes. The ER can then bonus extra money to the targeted employees so that they can afford to elect payroll reductions to pay for the individual coverage--or whatever else those employees, on an individual basis, may choose to do with the bonus money. This approach is like threading the needle, but there is that much of an opening if done right.

[leevena]

I'm not talking about a welfare benefit type plan -- just an employer who's willing to purchase health insurance for some of his employees.

Isn't there a disconnect here? Purchasing health insurance for employees is a welfare benefit plan covered under ERISA and the Internal Revenue Code.

If the policies are policies purchased individually, the employer may pay the premiums but they will be declared as income to the employee (who may also be able to take a personal deduction for all or a portion thereof). It will also still be subject to pre-existing conditions notwithstanding health care reform.

If the policies are purchased as small group coverage (1 or 2-10 employees, depending upon your state), the insurance company will require non-discrimination based upon its rules. There will be no exclusion of pre-existing conditions.

I agree with vebaguru if the ER pays the premiums it will be a welfare benefit plan covered by ERISA. ERISA does not however impose a nondiscrimination requirement. If the coverage purchased is through individual policies that impose pre-existing conditions, the group health plan might be in violation of HIPAA special enrollment rights. Under current Code section 106(a), the value of the coverage would be excluded from the employee's taxable income and under section 162 deductible by the ER (to the extent it does not cause total compensation package to be unreasonable). This is so whether such coverage is provided for all, there is varying coverage or only the highly compensated employees are recipients. There is currently no nondiscrimination rule.

If the group health plan is subject to all of the new Health Care Reform (i.e., is not grandfathered passed portions), then there is a new nondiscrimination requirement imposed for group health coverages. It was supposed to take effect 1/1/2011, but it's implementation has been delayed by the IRS pending further notification (when the IRS gets a few rules sorted out).

If an ER keeps its involvement down to a very minor level and lets EEs choose their individual coverage and pay for 100% of the premium through a bare bones cafeteria plan (IRC section 125), then it will not be either a welfare benefit plan for ERISA purposes nor a group health plan for HIPAA and new Health Care Reform purposes. The ER can then bonus extra money to the targeted employees so that they can afford to elect payroll reductions to pay for the individual coverage--or whatever else those employees, on an individual basis, may choose to do with the bonus money. This approach is like threading the needle, but there is that much of an opening if done right.

John, I agree with your comments, but have a questions. If the employer is operating a 125 plan (which it does not appear so) wouldn't the 125 discrimination issue arise here? Or am I missing something.

Thanks

[J Simmons]

I'm not talking about a welfare benefit type plan -- just an employer who's willing to purchase health insurance for some of his employees.

Isn't there a disconnect here? Purchasing health insurance for employees is a welfare benefit plan covered under ERISA and the Internal Revenue Code.

If the policies are policies purchased individually, the employer may pay the premiums but they will be declared as income to the employee (who may also be able to take a personal deduction for all or a portion thereof). It will also still be subject to pre-existing conditions notwithstanding health care reform.

If the policies are purchased as small group coverage (1 or 2-10 employees, depending upon your state), the insurance company will require non-discrimination based upon its rules. There will be no exclusion of pre-existing conditions.

I agree with vebaguru if the ER pays the premiums it will be a welfare benefit plan covered by ERISA. ERISA does not however impose a nondiscrimination requirement. If the coverage purchased is through individual policies that impose pre-existing conditions, the group health plan might be in violation of HIPAA special enrollment rights. Under current Code section 106(a), the value of the coverage would be excluded from the employee's taxable income and under section 162 deductible by the ER (to the extent it does not cause total compensation package to be unreasonable). This is so whether such coverage is provided for all, there is varying coverage or only the highly compensated employees are recipients. There is currently no nondiscrimination rule.

If the group health plan is subject to all of the new Health Care Reform (i.e., is not grandfathered passed portions), then there is a new nondiscrimination requirement imposed for group health coverages. It was supposed to take effect 1/1/2011, but it's implementation has been delayed by the IRS pending further notification (when the IRS gets a few rules sorted out).

If an ER keeps its involvement down to a very minor level and lets EEs choose their individual coverage and pay for 100% of the premium through a bare bones cafeteria plan (IRC section 125), then it will not be either a welfare benefit plan for ERISA purposes nor a group health plan for HIPAA and new Health Care Reform purposes. The ER can then bonus extra money to the targeted employees so that they can afford to elect payroll reductions to pay for the individual coverage--or whatever else those employees, on an individual basis, may choose to do with the bonus money. This approach is like threading the needle, but there is that much of an opening if done right.

John, I agree with your comments, but have a questions. If the employer is operating a 125 plan (which it does not appear so) wouldn't the 125 discrimination issue arise here? Or am I missing something.

Thanks

Hey, good to hear from you.

The type of 125 plan that it would have to be to have so little ER involvement would be a POP. Flex accounts simply require too much involvement by the ER to fly under the radar of ERISA as a welfare benefit plan or COBRA, HIPAA and the new Health Care Reform as a group health plan.

In the 2007 Proposed Regs, sec 1.125-7(f)(1) provides that a POP "is deemed to satisfy the nondiscrimination rules of section 125© and this section for a plan year if, for that plan year, the plan satisfies the safe harbor percentage test for eligibility in paragraph (b)(3) of this section." If this option to select his own individual policy and elect to pay 100% of the premium cost through elective salary reduction is made available to all non-excludable employees, then the Plan satisfies the safe harbor percentage test for eligibility. (Note, the offsetting bonuses, boosting the earnings, would yet only be made for those the ER desires.)

In the Preamble to the 2007 Proposed Regs, under the heading Proposed Effective Date, it is specified that "Taxpayers may rely on these regulations for guidance pending the issuance of final regulations." See page 27 of 124 pages in the 2007 Proposed Regs.

[Guest Sieve]

John --

I may be having an early-morning brain freeze, but why is it that this kind of arrangement, even through a cafe plan, would not be a group health plan? Doesn't it meet the definition of "group health plan" under IRC Section 5000(b)(1) (through Section 9832(a))?