Can a Self-Insured Plan Provided Continuation Coverage Beyond COBRA Pe

[Guest McElroy]

A company maintains a self-insured health plan. A 53 year old highly compensated employee who has MS is retiring. The Company would like to have the employee continue to be covered under the self-insured health plan until such time as the HCE is eligible to receive Medicare. The HCE is willing to pay the COBRA costs associated with this coverage. Are there any Code Section 105(h) issues if this coverage is provided under a severance agreement? Any thoughts?

[Kirk Maldonado]

My visceral reaction is that you automatically flunk 105(h).

[Larry M]

why not amend the plan to provide coverage for any employee who has reached 53 years of age and who has at least X years of service and who retires because of disability (as defined by the plan)? The coverage will continue until the earliest of

a. eligibility for Medicare

b. recovery from disability

c. termination of the plan

d. eligible under another employer's group plan

just a thought!

[Guest Paul]

If you go beyond COBRA then one can argue that you are maintaining another self funded health plan for retirees. The discrimination rules under 105(h) are applied seperately to active employees and retirees. As a result, if only a HCE is in the retiree plan it will fail the discrimination test.

[Guest carsca]

If the employee is paying the entire premium on a post-tax basis, why would the plan flunk 105? Doesn't 105 only apply to nondiscrimination of EMPLOYER contributions (see Treas. Reg. 1.105-11(i))?

[Sandra Pearce]

If the self-funded plan has reinsurance for large claims and the plan keeps the retiree on the coverage beyond the provisions in the Plan Document the Plan may find itself fully self-insured as relates to the retiree's coverage. I find reinsurance companies to require more and more documentation regarding eligiblity for coverage when a claim hits specific. I would consider the suggestion to modify the Plan language to accommodate this, and any like situation.

[Guest carsca]

Sandra,

Good point regarding the stop-loss insurance.

I think my question still remains with respect to a self-insured plan: namely, can anyone confirm that the plan should get a pass on 105 nondiscrimination because the premiums are being paid by the employee?

[Steve72]

I agree with Carsca. 105(h) only applies to employer-funded benefits.

[Ron Snyder]

The treatment of the benefit is difference between a self-insured plan and a fully-insured plan.

Self-Insured - Regs. 1.105-11©(3)(iii) provides: "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 ©. 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."

Fully Insured - Regs. 1.105-11(b)(2): "However, a plan which reimburses employees for premiums paid under an insured plan is not subject to this section." And Regs. 1.106-1: "The gross income of an employee does not include contributions which his employer makes to an accident or health plan for compensation (through insurance or otherwise) to the employee for personal injuries or sickness * * *. The employer may contribute to an accident or health plan either by paying the premium (or a portion of the premium) on a policy of accident or health insurance covering one or more of his employees, or by contributing to a separate trust or fund (including a fund referred to in section 105(e)) which provides accident or health benefits directly or through insurance to one or more of his employees."

[Guest carsca]

vebaguru,

I'm not sure what you mean by your post. The regulations you cite only deal with benefits and coverage determined under Section 105. In the present case, it appears that 105 does not apply.

Please clarify.

Thanks much!

[mbozek]

I thought that 105(h) is only applicable to the extent the employer provides benefits under a self funded plan. Employee contributons are not counted for 105(h).