Different premium charge for new employees?

[TaxLawyer1978]

An employer currently charges its employees 25% of the health premiums, and pays the other 75%.  Going forward, the employer wants to charge any new incoming employees 50% for health premiums, but have the existing employees continue paying the 25%.  That would result in the existing employees getting 75% of premiums as employer contribution, while new employees would only be getting 50%.  

Is this permissible?  Or is it discrimination?

[leevena]

Not enough info provided to give a definitive answer, so keep that in mind.  HIPPA allowsa for different contribution levels, so I would say a 98% yes it is ok.  But if the plan is self-funded, or if the premiums are run through a 125 plan, you should test for non-discrimination for both.  Highly unlikely, but possible for discrimination in one of these.

[Bob the Swimmer]

Agree---And the proposed nondiscrimination rules for insured plans would also make this taxable, if the regs are ever written (while I am still young).

[TaxLawyer1978]

Thank you both.  

[Chaz]

As mentioned above, you need to consider both the cafeteria plan and, if applicable, the self-insured medical plan nondiscrimination tests.  If existing employees are disproportionately highly compensated when compared to new employees (which ordinarily is the case), there is a good chance that this arrangement will fail the tests.  The only way to know for sure is to run the tests.  Failing the tests will result in the highly compensated incurring additional taxable compensation, the amount of which depends on which of the tests (or sub-tests) are not satisfied.