Opt-out of welfare benefits & get paid?

[Guest Benefitsrock]

Assuming we have a cafeteria plan, can I pay certain employees greater salaries if they agree to opt-out of welfare benefits? For example, one employee has health insurance through her husband's job.

Seems okay to me, but I think that if the employees changed their minds down the road, we would have to allow them to participate in the welfare benefits and we couldn't then reduce their salaries.

Any thoughts would be greatly appreciated.

[Chaz]

Opt-out payments are permissible and are increasingly common. Your cafeteria plan will have to be amended to provide for the payments. Any election will be subject to the irrevocable election rules so employees must have a valid change in status event to add coverage (at least on a pre-tax basis) and cannot add coverage simply because they "changed their minds."

[masteff]

To expand slightly on Chaz' answer... you wouldn't be paying them a higher salary, rather they'd be receiving a cash option under the cafeteria plan.

[Guest Benefitsrock]

To expand slightly on Chaz' answer... you wouldn't be paying them a higher salary, rather they'd be receiving a cash option under the cafeteria plan.

We want to pay them a higher salary, that is an amount equal to the health insurance premium that we would otherwise pay on their behalf.

Are you saying that by selecting the cash option, we have to have a special cafeteria plan that offers employees who turn down health insurance a certain amount? So everyone has to be given the offer? Thanks!

[Guest morris]

Do you have any employees that are 65 or older? Offering them cash to not take your health insurance is providing an incentive for them to have Medicare only, which is not allowed under current laws.

[Chaz]

Do you have any employees that are 65 or older? Offering them cash to not take your health insurance is providing an incentive for them to have Medicare only, which is not allowed under current laws.

I recall that HHS has (informally?) stated that broad-based cash-out plans do not violate the MSP rules.