Another Cafeteria Plan Nondiscrimination Test Conundrum

[Chaz]

A small employer offers only fully insured medical insurance to its employees and employees pay their share of the cost of coverage through a cafeteria plan.  One (and only one) highly compensated employee is provided with additional cash compensation for opting out of the medical coverage.

Does this violate the benefits portion of the cafeteria plan nondiscrimination tests?  If so, what is the consequence to the one HCE? 

Thanks. 

[Brian Gilmore]

Is the opt-out credit offered to all employees who waive (and the others just declined by enrolling in the health plan instead)?  Or is the opt-out credit offered to only this one HCE to waive?

If it's the former, it's probably fine.  If it's the latter, it probably violates the uniform election rule.

[Peter Gulia]

Does the employee get incremental compensation because she opted out of health coverage?

To the extent the employee has a choice between health coverage and an increment of money wages, isn’t that a choice that must be properly made under a § 125 plan? Else, the employee has constructive receipt of the more valuable benefit she could have chosen.

If an incremental choice between an increment of money wages and health coverage is available to less than all health-eligible employees, does that incremental plan meet § 125 nondiscrimination?

If an opt-out amount might be added to what would be the employee’s portion of the health insurance premium, does that cause the employer’s offer of health coverage to be not affordable for one or more Affordable Care Act purposes (and related income tax and excise tax consequences)?

Does an opt-out offer violate HIPAA nondiscrimination?

Does an opt-out offer violate Medicare secondary-payer provisions?

Beyond those and other questions:

Is the employer’s opt-out offer a breach of the group health insurance contract? Or does the offer make false the application for the group health insurance contract. What are the legal consequences of such a breach or false inducement? If a false statement to the insurer is not corrected, is that a Federal crime, a State crime, or both?

This is not advice to anyone.