Cafeteria Plan Question

Paula · September 2001

I have an employee who has an adult child who is presently out of work. If the parent is paying for the childs COBRA coverage, can the parent apply those premiums to his cafeteria plan?

Down_the_Middle · September 2001

Apply the premiums, how???? Pre-tax??? Is the COBRA coverage continuation of your health plan or another, unrelated employer??

Scott Ruth · September 2001

It doesn't sound like you can. Only COBRA premiums being paid for continuation coverage under a health plan sponsored by the same employer can be paid through that employer's cafeteria plan. For a child, this generally will only occur where the child was on the employee's health coverage and loses coverage because of reaching a certain age, losing student status, etc.

SandiF · September 2001

Premiums are never an allowable expense under a Cafeteria Plan.

Scott Ruth · September 2001

Good point. You are right that you cannot pay insurance premiums from a flexible spending account (often called a healthcare reimbursement account) under a cafeteria plan. What you may do, however, is allow an employee to increase the amount of salary reduction contributions to the cafeteria plan to pay for the COBRA coverage under the employer's health insurance plan. For example, if the employee has family coverage for a spouse and dependent child and is required to pay 25% of the total premium for that coverage, the employee may pay that 25% pretax through salary reductions under a cafeteria plan. If the child turns 19 or ceases to be a full-time student, the child (typically) loses coverage under the health insurance plan and becomes eligible for COBRA coverage at up to 102% of the applicable premium. In that case, the employee may be allowed (if permitted by the cafeteria plan document) to increase the salary deferrals into the cafeteria plan to cover the cost of the child's COBRA premium. Note, however, that such deferrals can only be pretax if the child continues to be a dependent on the employee's income tax return for the year (generally by providing more than 50% of the annual support for the child).

I hope this clarifies.

Cafeteria Plan Question

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