Small Employer Scenario

[beachbum2012]

I have a potential client turning 65 in June. He's working indefinitely and currently his small employer (less than 20 employees) pays for his and his wife's group health coverage. The employer's cost for both is ~$1,400/mo. in premium. Their current plan has a $200 individual deductible, and it sounds like that's the max OOP too. However, it has no Rx coverage. Employer said he'll continue to cover him and his wife after he turns 65 too.

Since the company has <20 employees, he has to sign up for Medicare Part A and Part B which will cost $104.90/mo. Also, since the group plan has no credible drug coverage, he'll be on the hook for the Part D LEP if he stays only with the group plan.

So my thoughts are: he can get Part B + medsupp + PDP for ~$250/mo. If the employer is willing to continue to pay for his health ins, why not drop both of them off the group, pay for his Medicare coverage, and pay for her ACA plan? I'm sure she can get something just as good as the current group coverage for less than $1,150/mo., which will save the employer money.

My questions are:
1) Can the employer pay her ACA premium, or possibly her OOP expenses like deductibles and co-insurance too?
2) Can the employer also pay for his Part B premium and/or medsupp & PDP?
3) If yes, does anything special need to be done for the employer to set it up? Would these healthcare costs be paid outright by the employer, or more of a reimbursement? I'm not sure if this would be considered taxable income for the employee, or a tax-deductible expense for the employer (or even if the current group plan is now).
4) Can the employer drop them from the group so that she is involuntarily losing coverage, eligible for an SEP, and even a subsidy (they would qualify)?
5) If he decides to stay on the group plan, can he sign up for a standalone PDP to avoid the LEP?

 

[Ann H]

Questions 1-5:

If a 65 year old couple enters a mine field with 5 explosives hidden under the surface, what is the likelihood that it would blow up?

Here's a general answer:

The employer can pay the employee any extra amount he wants. Not tax-deductible, mind you, it's an addition to income. But that strategy is a mine-field of hidden explosives including:

* Non-discrimination (is the employer paying bonuses to similarly-situated employees?)
* Is the employer encouraging the employee to leave the group plan to save money (DOL complaint, lawsuit)
* If the employers "bonus" is equal to or substantially the same as the premium, deductible, co-insurance, etc., then it would be hard to circumvent the explosives by claiming it was "just a bonus"
* Question #4 - no, the employer cannot drop them from the group plan unless there is a valid reason (went to part-time, left employment, etc.) If the employee found a valid reason, then the spouse's involuntary loss of coverage is a qualifying event.

 

[beachbum2012]

Here's a general answer:

The employer can pay the employee any extra amount he wants. Not tax-deductible, mind you, it's an addition to income. But that strategy is a mine-field of hidden explosives including:

* Non-discrimination (is the employer paying bonuses to similarly-situated employees?)
* Is the employer encouraging the employee to leave the group plan to save money (DOL complaint, lawsuit)
* If the employers "bonus" is equal to or substantially the same as the premium, deductible, co-insurance, etc., then it would be hard to circumvent the explosives by claiming it was "just a bonus"

I didn't know if the employer could simply put the ~$1,400/mo. into an HRA (or similar) instead of paying for this employee's + spouse's premium. His coverage would be better with a Medicare plan because he could see any doctor that takes Medicare, and he would have Rx coverage, as opposed to the HMO w/o Rx coverage he has thru the group. The wife could also get a PPO w/ Rx coverage and still come out ahead, cost-wise.

This argument gets more interesting next August when the wife turns 65 and then the cost comparison isn't even close.

* Question #4 - no, the employer cannot drop them from the group plan unless there is a valid reason (went to part-time, left employment, etc.) If the employee found a valid reason, then the spouse's involuntary loss of coverage is a qualifying event.

Doesn't an employer have a right to drop an employee of a group health plan when he becomes Medicare-eligible? It's not a rhetorical question; I really don't know. And if he's dropped, the wife will be dropped too.

 

[Ann H]

The concept is admirable. Save money by putting the family on individual/family plans and medicare plans. Win-win-win. However, the regulations have put you in a box.

Regarding the HRA - be careful with that idea. The IRS, DOL, and HHS issued joint regulations banning the use of an HRA for individual/family premiums. As for reimbursing deductibles and out-of-pocket expenses, an HRA can be established for those covered under the group plan only. These government agencies also slammed the door on HRA look-alike ideas for IFP premiums, so be very careful.

Regarding the Medicare SEP idea - I don't know if the EMPLOYEE could get an SEP for becoming Medicare eligible, but it's possible considering all the give-away SEPs that CMS is allowing! If so, the employee's loss of coverage triggers the spouse's loss of coverage, as you said. However, the EMPLOYER cannot just arbitrarily terminate group coverage for medicare-eligible folks.

If there's any way the employer can bonus the couple some extra money (taxable), without being discriminatory to similar employees, and without giving the same amount as the premium & out-of-pocket expenses, then this would be the best way. A non-taxable idea would be for the employer to give funds for the wife to put in an HSA account. It would be taxable to the employee, but the employee could turn around and tax-deduct it on Page 1 of his Federal Form 1040. However, once again, it needs to be non-discriminatory and not a mirror of the amount of premium and out-of-pocket expenses.