Health Insurance Buy Out... Is this Possible???

Aletha · August 2002

My former employer (six years ago) offered employees a "cash buyout" if they elected not to take company insurance. They offered the enrollee a monthly dollar figure if they elected not to take the company insurance.

I'm not sure the exact name of the program, however, I am curious if this is something that is legal and how I would find out information about it.

I'm thinking about ways to cut benefit costs without raising employee premiums on the ones who do need the insurance. There may be some who are electing the insurance but whose spouse may have them covered also.

If anyone has information on this please advise.

Don D · August 2002

Maybe I'm paranoid, but, I can't imagine a dollar amount added to salary that would make me opt for that instead of family health coverage.

sonny · August 2002

I had a former employer who offered a once a year sum to ee who were eligble for family health care benefits, but did not opt to take them. At the time, the employer was paying 100% of benefits. It was in Ohio, part of a CBA and assume it was legal. What was happening (FYI re Don D comment) was since it was 100% covered, ee would sign up for it even if spouse had good coverage. . after all it wasn't costing them anything. .With the once a year payout, we did experience a decrease.

Steve McElfresh · August 2002

I believe you will find that there are no federal/ERISA restrictions on doing coverage waivers, but you should make certain that there is nothing in your state that says otherwise.

I would also require that anyone seeking a waiver has alternative coverage and would ask for documentation of that coverage, as well as agreement that they will give you timely notice if that coverage ends (which would be a qualifying event to join your plan outside of the Open Enrollment window).

Of course, this is not legal advice and you should seek same. I expect that your benefits consultant could readily provide you with draft waiver forms and help you think through the pricing dynamics.

Re Don's comment, this would of course only be of interest to someone with low-cost alternative coverage. Here in Silicon Valley where most couples are dual earners, our experience is that 3 - 6% of employees will elect to waive coverage with a modest (~$100/month) payment.

Regards,

Steve McElfresh, PhD
Principal
HR Futures

408 605 1870

Lori B · August 2002

Be careful. There are tax implications with this scenario unless you structure it properly. We have contemplated this one, but not pursued it further yet. I came across the following information from a seminar I attended earlier this year. (We touched on this issue in a brain storming session.) An HR manager in NY shared her company's experience below. Her points are pasted below:

· We offer $700 per year to each employee who is eligible but declines health insurance
· Payments are lump-sum at year-end (or upon separation)
· About 20% of our workforce elects this option (all have other insurance in place)
· We save $1,200 to $5,200 per employee electing the option (depending upon location and family status)
· Tax consequences can be avoided by offering the cash option within a flexible spending account, thus avoiding “constructive receipt” problems (concept that when a cash option is available to you, you have received the income and should be taxed on it, regardless of whether you actually took it)
· Participants sign an FSA election selecting the option and declining health insurance
· The cash is paid and taxed through the payroll system and is not handled by our FSA TPA.
· Include the cash option in health insurance SPD.
· Issue HIPAA notice when someone drops your health insurance at open enrollment to elect the cash option
· Have an attorney review structure of your cash option
· Review utilization and adjust payment level if necessary

Shari Turner · September 2002

We started this type of plan last May and have saved our company
money as well as given money back to our employees. We do not
want anyone to be without Health Insurance therefore we do have
a requirement that they have coverage of some kind. Most have
coverage under a spouse or are eligible for our state Medicaid
program. We provide this coverage as a cafeteria plan and have
a great organization to help us with all the IRS rules and paperwork.
E-mail me if you would like more info (shari_85635@yahoo.com).

cindyp · September 2002

I have a similar question only it involves all fulltime benefits. Our president wants to give ee's the option to turn down all ft benefits with the understanding that they will receive more hours and possibly more pay. The benefits include Medical/Dental insurance(ee pays part of premium), Group Life, LTD and STD all paid by the company. Our policy states any ee working over 30 hours per week is eligible for the benefits. The President wants to offer this to some parttimer's who would like more than 29 hours per week. If they turn down the benefits initially what is to prevent them from requesting them later. I don't see a legal way to do this. Has anyone else ever done this?

Rockie · September 2002

We have a Section 125 Plan where employees can use their "dollars to purchase what they need. If they don't need the health coverage, then can opt for other benefits such as additional life insurance, etc. All employees have to sign a waiver of health insurance if they opt not to take it in order they are insured somewhere. This insures that the employer did, in fact, offer the coverage and it was formally declined. (Protection for the employer).

If you just blatantly ask employees if they would rather have the money or health coverage, some would opt for the money and then scream bloody murder when something happened to them and they were stuck with a huge medical bill.

cindyp · September 2002

We also have a Section 125 plan and we always have employees sign-off when turning down Health Insurance. But what is to keep them from coming to us later stating they no longer have other coverage and now want ours. Also, we have never asked anyone to waive the Short and Long Term Disability or the Group Life. Can we do that?

franfields · September 2002

My fear would be the perception that you encouraged them(through additional compensation) to opt out so that they would not be on your insurance. If they needed medical attention and didn't have coverage, there is a lawyer somewhere that would take the case.

I agree with those who make sure they have other coverage and that they sign a waiver.

AnneLa · September 2002

Our group life & disability is 100% company paid. Our contract with the insurance provider does not allow us to have emploeyes "opt" out of coverage. It's sort of an all or nothing deal in order to maintian our coverage.

Health Insurance Buy Out... Is this Possible???

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