Retiree Health Insurance Premiums - Employer wants to pay former employee's share of cost

[waid10]

Hi.  The employer is a school division.  They have a retiree health plan.  The employer subsidizes a very small portion of the premium.  Most is the retired employee's share.  The superintendent has recently retired.  The school board would like to pay the employer and the retired employee's share of the premium until the retired superintendent reaches Medicare eligibility.  Is this permissible?

I thought that these types of arrangements (employer pays or reimburses an employee for premium cost) was banned by the ACA.  Are there other ways to accomplish this?  I know that the school board won't want to change the structure and raise the employer subsidy for all retirees.  I also thought about the option of having the school division hire the former superintendent as some sort of consultant so that they could pay him a wage equal to his share of the premium cost (but I don't think the school board is interested in that).

Other ideas?  Am I missing a simple solution?

Thanks.

[GeoFay]

What about a retiree-only HRA to reimburse the retired employee's premium costs?

[loserson]

As GeoFay suggested, if there are no current employees in the HRA, it is not a health plan for ACA market reform purposes.  In which case it is okay for the HRA to pay any §213 medical expenses, including medical coverage premiums, and there is no ACA violation.  It's also excludable for purposes of §106, so retiree HRA is cheaper than paying taxable wages for a sinecure.

[mdm09]

Agreed with previous posters, but posing one question.  Is the idea that the school will pay the employee portion only for the retiring superintendent, or for all retirees for the period before the superintendent reaches Medicare age?  I'd check the nondiscrimination rules in either case.

[loserson]

I didn't want to get into 105(h) because it's thorny.  But the issue having rightly been raised, I briefly looked and it seems like mdm09 is probably right to be concerned that the superintendent would be an HCI and that this structure would impermissibly discriminate in his favor.

Treas Reg §1.105-11(c)(3)(iii):

Quote

 

(iii) Retired employees. To the extent that an employer provides benefits under a self-insured medical reimbursement plan to a retired employee that would otherwise be excludible from gross income under section 105(b), determined without regard to section 105(h), such benefits shall not be considered a discriminatory benefit under this paragraph (c). The preceding sentence shall not apply to a retired employee who was a highly compensated individual unless the type, and the dollar limitations, of benefits provided retired employees who were highly compensated individuals are the same for all other retired participants. If this subdivision applies to a retired participant, that individual is not considered an employee for purposes of determining the highest paid 25 percent of all employees under paragraph (d) of this section solely by reason of receiving such plan benefits.

 

 

[MichaelMinix]

On 5/8/2019 at 1:50 PM, loserson said:

I didn't want to get into 105(h) because it's thorny.  But the issue having rightly been raised, I briefly looked and it seems like mdm09 is probably right to be concerned that the superintendent would be an HCI and that this structure would impermissibly discriminate in his favor.

Treas Reg §1.105-11(c)(3)(iii):

Thanks for sharing. 

[Ken Peterson]

Was going through some older topics and came across this.  What was the final outcome, if any?