List Bill with Section 125 Cafeteria Plan

[joshuapaccione]

I am working with a small business that doesn't want group coverage but individual policies. The group is 7 employees. They wish to use their section 125 policy to get their coverage pretax.

List Bill with Section 125 Cafeteria Plan? Would this work? and allow them to do payroll deductions?

 

[joshuapaccione]

130 people dont know? /cry but I have figured it out. You can use section 125 on individual plans as long as its payroll deduction and the section 125 is worded to allow it.

 

[Full Throttle]

Individual policies pre-taxable through a properly structured 125 plan? Yes. List billed? You will get different opinions. I lean toward no.

JMO.

 

[leevena]

The reason why there is a variety of opinions is that there is considerable uncertainty as to the legality of running these premiums through a POP plan. Personally, I believe that you cannot run a list-bill of individual medical policies through a POP plan. Let me explain.
When the states began adopting small group reform many of them were concerned about adverse selection so they adopted similar type language/regulations that limited the employer’s ability to contribute towards individual polices. If an employer contributed towards the individual policies, the state would then recognize them as a “group” plan. There is legal concern that even if there is no dollar contribution, just the fact that the employer is allowing this to occur via list bill that there is “employer sponsorship” of the program, which will also make it a group plan.
At issue is the definition of a “group health plan” and if the use of POP plan then violated HIPAA’s prohibition of using health status to underwrite the plan.

 

[kheyknee]

Most work site plans are individual policies, and paid for pre tax using a POP plan. The plan document needs to reflect what is offered.

 

[Franz Kafka]

leevena is right. If one employee can get the benefit, then all employees must be able to get the same benefit. Tax exemption via 125 is a benefit. JMO

 

[joshuapaccione]

Yea I have made several calls not only to the Indiana Department of Insurance but to the IRS as well. It is a touchy subject but their sec 125 is worded to allow individual plans and as long as it is payroll deduct it is legal. I plan to make sure I cross all my "eyes:" and dot my "tees" to be safe tho.

 

[LGilmore]

I have done this with dependent coverage. It is fairly new and one of those obamacare things that hasn't been talked about.

It will depend on the state and what they allow. In mine you can run separate company dependent premiums through payroll deduct and a 125. The list bill is the insurance company issue not the state.

In my case, a small office of 8 and they just pay each as individual for those dependents not in group that want to run it through payroll.

I don't know about Indy and I have the info on another computer but you should be able to google and find info state by state.

The biggest issue was HR paying several bills because no list bill set up. But HR was running 3 other policies through plan so didn't mind at all.

 

[leevena]

leevena is right. If one employee can get the benefit, then all employees must be able to get the same benefit. Tax exemption via 125 is a benefit. JMO

Sorry, but I did not say this is legal. I said that I would not do it.

As for the people who say they discuss this with the IRS or State Dept of Insurance, please read my response again. I said I would not do it because it may violate HIPAA. HIPAA is regulated by HHS.

 

[junkman]

The major TN carriers won't allow a company check for anything but the owners.

Any business where the owner files a schedule C (ie LLC, Sub S or Sole Proprietor), the owners are not eligible for a 125.