What is the reason why parents are not considered as eligible dependen

[Guest Cecelia Chahal]

One of our employees, who claims his parent as a dependent on his tax returns, wants to know why parents are not considered as eligible dependents under our medical plan. Can anyone offer a textbook definition as to why they are not covered? Are parents excluded as dependents in all Section 125 plans?

[KIP KRAUS]

CECELIA

I don’t know that there is any textbook reason that employers do not cover parents as dependents under their group medical plans. However, it occurs to me that there is at least one major reason that they wouldn’t want to; higher exposure to higher medical expenses.

I always try to put this type of employee question in perspective. The company cannot afford the possible high claims exposure by opening up enrollment to dependent parents.

[david rigby]

Kip has this absolutely correct.

[Guest Scaf]

If your medical plan is insured, as the last reply noted, parents are exclude for design reasons. However, parents who qualify as dependents under the tax law can be included in a 125 plan in such things as medical reimbursement accounts (FSAs), even if your insurer won't cover them under the medical plan

[Greg Judd]

Did some work for a huge East Coast firm that did permit employees to cover other-than-traditional spouse/kids dependents, per bargaining agreement.

It was a vestige of their rate-regulated past, tho they'd continued the practice into their brave new less-regulated biz environment.

Costly.

[KIP KRAUS]

Hey Greg:

I guess an employer who wants to foot the bill for the extra claims costs can pretty much allow anyone they want to participate in their medical plan, especially if it’s self-funded. I’m sure, if state regulations don’t prohibit it, an insurer would also underwrite such a plan. Heck, why not write crowd insurance and let employees put siblings and neighbors on the plan.

[Guest Scaf]

One prohibition is if the plan is self funded, its only entitled to ERISA preemption (and consequently avoids state regulation as an insurance company) if the participants have a common employment bond. On the insured plan side, underwriting restrictions on the group plan will prevent a too expansive definition.

I agree however that including parents in the medical plan is a costly and perhaps unwise decision. However, there is a lot of utility to including them in a 125 plan, especially if the uninsured costs for those parents are being picked up by the children anyway. This shouldn't be a cost to the sponsoring employer and will likely be a huge benefit to the children supporting their parents.

[KIP KRAUS]

Scraf:

I agree with your statements about self-insured plans. However, I disagree somewhat with your statement about insured plans. If a group is large enough and they are fully experienced rated, and they want to expand the definition of eligible dependent, I’m sure the insurer will find a way to accommodate them. In fact, if they can cover same sex, and domestic partners, they can surely cover dependent parents, siblings, aunts, uncles, in-laws and any other dependent an employer may want to include. This would still be crowd insurance. Just have one HCE have the need and “thy will be done”. Of course all similarly situated employees would have the same option.

The neighbors comment was a stretch and a joke!!!!!

[Greg Judd]

Originally posted by KIP KRAUS

The neighbors comment was a stretch and a joke!!!!!

Hi Kip,

Not such a stretch in some communities, where blood relationships of "uncles" & "aunts" etc are not always well-documented....