Employee Healthcare Coverage

Mel

Is it legal to offer different healthcare coverage to different levels of full time employees? Example: if you have line workers, supervisors, and director levels, can you offer a basic package for the line workers, a more enhanced package for supervisors, and an even more padded package for the director level?

Also, is it legal to offer the same coverage to all staff, but pay more of the premiums for the higher level employees? Example: pay for individual coverage only for line and supervisory staff, but offer to pay individual, dependent, and spouse/family coverage for director level employees

dhnyct

Good question....And what about offering increased coverage/premium levels for specified years of service as retention incentives?

dhnyct

SOMEBODY.....PLEASE REPLY! ! !

Does anyone out there use a sliding scale of benefits based on years of service??? Hourly versus salaried???

We have planned a big meeting next week to discuss retention incentives, etc., and I need to make sure we head in the right/legal direction.

THANKS ! ! !

Susan Fentin MA

I suspect the reason that you haven't gotten a response is because your question involves the most complicated statute ever enacted by Congress, ERISA, which controls what you can and cannot do with regard to some employee benefits. The lawyer answer will be "it depends" and this is not something for which you will want to rely upon other people's experience, because the field is so complex and the penalties are so severe. Consult your labor and employment counsel or an ERISA specialist, and good luck.

Scott Ruth

Basically, if you provide nonuniform benefits to different classes of employees through a fully insured health contract with an insurance company, with premiums paid other than through a cafeteria plan (aka Section 125 or Flexible Benefits Plan) there is no problem, subject to various state laws regulating insurance. Your insurance carrier can tell you if your proposals are acceptable under those laws.

However, if your health benefits are self-insured (including partially self-insured with stop-loss insurance) or premiums are paid through a cafeteria plan, providing better health benefits to highly compensated employees (HCEs)can cause impermissible discrimination under the tax code. This could result in benefits paid to these employees being treated as taxable income to them. Therefore, you should proceed with caution before offering any nonuniform benefit structure under a self-insured plan or cafeteria plan.

The rules governing health and cafeteria plan discrimination are extremely complex and unfortunately less than clear. However, as a rule of thumb if your benefits are better for any HCEs than other employees, you probably have discrimination. In the self-insured health plan context, the HCEs are the top 25% of your employees ranked by compensation, the top 5 paid officers, and any 10% or greater shareholder. In the cafeteria plan context, it it less clear but the HCE test is generally believed to be: income of $85,000 or more in the prior year, 5% or more ownership of the company, or any officer of the company.

If based on this rule of thumb it looks like you might favor HCEs, you should consult with a benefits attorney to determine if you can or should proceed.