Premium reimbursement arrangement--not subject to discrimination rules?

[Guest Penelope]

For employees on Medicare and others who waive coverage under an employer's group health plan, the employer reimburses the cost of Medicare supplemental coverage, a spouse's health plan or other alternative coverage. This is fully employer-paid--no salary reduction.

As this arrangement only reimburses employees for the cost of coverage under another insured plan, I believe reimbursements are excluded from tax under section 106, and not section 105. Therefore, I don't think it's subject to the discrimination rules of 105(h), so it would be OK if the only employees who actually waive coverage are HCEs. Am I right?

[Guest Sieve]

Question: does the employer have 20 or more employees for each working day in each of 20 or more calendar weeks in the current Plan Year or the preceding Plan Year?

[Guest Penelope]

Question: does the employer have 20)or more employees for each working day in each of 20 or more calendar weeks in the current Plan Year or the preceding Plan Year?

Yes

[Guest Sieve]

In that case, Medicare is secondary to your health plan, and you therefore may not offer any incentive to cause Medicare-eligible employees to drop the group health plan--such as the reimbursements you are offering.

[Guest Penelope]

Thanks for your answer. Medicare primary and secondary questions make my head hurt.

Under this program, an employee may elect to stay on the employer's health plan, which is very generous, or go on Medicare. If she goes on Medicare, the amount of the reimbursement would not exceed the cost of coverage that would bring the employee to the level of coverage she could receive under the employer's health plan, so the employee's coverage is the same in either case. Is that a prohibited incentive?

[Guest Sieve]

Yes, because it encourages the employee to waive the group health plan, which is primary, thus making Medicare primary for that employee. It may be a wash for the employe, but that incentive caused the employee to make Medicare primary (when, without the incentive, Medicare was only secondary).

Note that such incentives can be offered by employers of less than 20, because Medicare is primary in that case (even with group health plan coverage)--so, the incentive doesn't encourage the shifting of primary coverage to Medicare.

[Guest morris]

Agreed with Sieve in regards to Medicare incentivizing. However, I'm not sure I agree with you that these payments are not subject to section 105. It seems to me that they are, because:

1) these are amounts received under a health plan.......

2) ....for 213(d) expenses....which includes insurance premiums.

Agree/disagree?