By Ric Joyner and B2B participants
Can employers use methods to prevent employees and dependents from having double coverage? Let’s use this example. Assume the employer has a group plan. An agent in NAHU is doing some brainstorming with the HR person and the NAHU agent says, “Have you considered asking employees to leave your health plan to go on their spouses?”. HR person, “No, but what are the risks and rewards?”
1. We know that many employees have spouses that work at other businesses that provide health insurance similar to our plan. Why not ask them provide an incentive to move to their spouses plan, thus saving you the money, and reducing waste in the health care system with double coverage. We recommend that you not *force the employee to leave your plan, but certainly require the employee to enroll in single versus family coverage. This assumes the family is covered elsewhere which, will save money.
2. An example of providing an incentive to transfer onto spouses insurance are;
a. Give them a “token” amount of money as a “cash option” if they choose the opt out of health insurance plan. Follows is an excellent example of this tact posted in the discussion thread on NAHUnet.
AGENT COMMENTING ON OPT OUT DISCUSSION
This is exactly the type of group where an opt-out would work perfectly. I have been successful at doing a per paycheck opt out that equates to about $100 month. I know that may sound low, but I’ve tried higher amounts and it creates too much of a drop out rate among the desirable aged employees who can purchase insurance on their own for less. You may need to work on that contribution level too. Employees with two working partners compare whose plan is better and costs less – at a 2% contribution and high family concentration you can see whose plan they are choosing regardless of design. It might be a good idea to take John Sinibaldi’s approach of having a high/low plan option with a HDHP and putting the 2% contribution on the HDHP or making it free (with the opt-out as incentive not to join if they already have other coverage) and having more of a contribution in the higher cost/higher benefit plan. Just some thoughts… I’m sure you will be able to find the right combination with more analysis of the plans available and the work force and employer needs.
Employee Benefit Solutions
Jerry Orlans, FMLI said it best:
….I agree with Ric, this has been around a long time and used in different ways. I also agree with John Sinibaldi, that you should try to do what ever you can to keep participation up within a group.
The bottom line is that’s our job; to work with each client and come up with a plan that works for them base on their goals. Some pay a lot towards the premium and maybe an opt out will work. Others pay as little as possible to premium and John’s method may be the best. You need to keep the premium contribution the employees is paying within reason and not erode the group plan!…
Jerry Orlans FLMI
RBC Benefits, Inc.
*3. Issues with ERISA and other Landmines to avoid. I made the mistake of saying in an email that on the CEBS forum some employers were forcing their employees off the group plan onto their spouses plan. This was too aggressive a comment as pointed out by David Weber. Forcing or pushing employees out of any ERISA Welfare Benefit would violate ERISA non-discrimination testing. The best way to show how this conversation unfolded off NAHUnet is to publish the emails here for your review.
ERISA does not allow you to discriminate in the offering of health insurance except by class.(over 50 groups only) Employees whose spouse works and has insurance is not to the best of my knowledge and acceptable class. So how do you demand they join their spouses plan and they are no longer eligible for their employers plan??
David R. Weber
I sent his comments to our attorney which has spoken for NAHU Webinars, and here is his comment. Make sure you read the entire thread after this email, without stopping at this first comment. Remember the key words are force or push out of the health plan.
Here is my take on what I am picking up on this e-mail chain:
(1) ERISA 510 could come into play under circumstances like this: Employer sponsors a fully-insured health plan. The plan by its terms covers all employees and dependents regardless of potential eligibility under another plan. The employer wants to get employees off its plan and tells employees who can obtain coverage through a spouse’s plan that they must decline coverage (or else bad things will happen). This would be a 510 issue because the employer is interfering with rights granted by the terms of the plan. However, if the plan, by its terms, excludes a person from eligibility there is no 510 claim.
(2) If the plan is fully insured, state insurance law may preclude an insurer from issuing a group health plan that excludes employees who have health coverage available elsewhere.
(3) The Medicare Secondary Payer rules prohibit employers from excluding coverage for active employees on the basis of eligibility for Medicare, Tricare and Medicaid. (This is permitted for retiree coverage).
(4) About 20 states have discrimination rules that apply to marital or family status that could raise problems. Depending on the plan design, there could be a claim from a married person whose spouse has bare bones coverage available claiming that the single employee gets the great employer coverage while the married employee gets left out in the cold based on marital status. Under Shaw v. Delta Airlines, 463 US 85 (1983), there is a good argument that state law prohibiting marital status discrimination is preempted from application to the health plan by ERISA, for ERISA-governed plans. To my knowledge, this has not specifically been tested on these facts, however. Even if they could win, it doesn’t mean they wouldn’t be challenged, with all the attendant cost and bad publicity.
(5) A self-insured plan will need to pass discrimination testing as to eligibility for benefits. A rule like this could blow up the test depending on the circumstances and who and how many employees are excluded.
(6) Employers not covering their own employees has been behind efforts at the state and local level to enact some type of “pay or play” legislation to stop such tactics. At least the philosophy behind a spousal carve-out is that each employer should cover its own employees on a primary basis. This design says “you should cover your employee, and mine too.”
(7) The employer might also generate some serious stalemates with individuals caught with no coverage between two plans.
Of course, my job as the attorney is to help identify and resolve risks. It may well be that an employer is able to implement something like this depending on the circumstances. Bottom line – an employer should look carefully at the applicable rules and impacts for the particular plan before implementing.
Todd W. Martin
Reinhart Boerner Van Deuren, s.c.
22 East Mifflin Street
Madison, WI 53703
(608) 229-2244 (direct)
(608) 229-2100 (fax)
(608) 219-7196 (cell)
David Weber’s comment back to me
Listen you cheese head. I have only a slight problem in bribing employees to decline coverage and go on their spouses’ plan. I have a big problem with a company who forces or demands an employee to opt out. Remember that was my bone of contention. Demand or Force was the key word. Furthermore, there is the issue of many companies not allowing a spouse to join a group plan if they have insurance available through their employer. When they all do this, then what will you do?
Have no fear, I will bake you a cake with a file in the middle when you go to TPA prison. J
David R. Weber
Here is my comment back to David
Not so fast bud. And your issue is a red herring and we will see why. Emails are not the best form of communication because the presentation of all facets takes too long. If we get further down the road we will have a call and you can see what I am talking about. This is a great bonus for the employer and employee IF the employee doesn’t need insurance and can stay on their spouses plan.
Ric Joyner, CEBS, GBA, CFCI
My Comment back to the Attorney
What I see on CEBS, and in our practice, is not what you addressed here buster. (you can tell where I am at with my snide comment) As usual you brought up a lot of fluff and attorney risk crap. (David you would have to know our long long (emphasis) long relationship to understand the jabs. Believe me if you weren’t on the email this email would be very different ;^) )
You didn’t address the opt out under section 125 possibly because I said we have the 125 stuff. But many employers in my practice those in large broker consulting houses and mid to large employers, and assume like eflex we pay 80% of the cost of insurance for all plans which we do. Assume that when I hire someone or I tell employees next year that I will give them $1,000 for going on another health plan such as their spouses if they opt out of ours, and they have to prove they have coverage. Another version is what WEAC uses (the state union for teachers David) where if you are offered a job and you have insurance elsewhere they will give you a $5000 opt out credit to either be taken in cash or deposited as a benefit of some kind such as in the flex plan if they don’t need the employers insurance.
Now change your version to show HOW this can be done. You also did not address the issue that I raised where it is not discrimination under the ERISA side if they move to their spouses plan voluntarily (I have seen the force) but we have not used that tactic.
I am referring to the overall problem of an employer offering coverage to an employee paying for it and has the same coverage
Todd batter up dude.
Ric Joyner, CEBS, GBA, CFCI
Ric Joyner is vindicated by Attorney
Ok Ric. You are absolutely correct that doing a “force out” in the plan that precludes participation for employees who have access to coverage elsewhere is not the only solution in this area. Also, despite the fluff and attorney risk crap, this solution may be viable for an employer. They just need to run down the check list of risks to make sure they don’t step in something when implementing.
Spousal carve outs are much more common and somewhat less controversial. There is also some equity in the philosophy that you cover your employees and we will cover ours.
In the end, what employers really want to get at is avoiding duplication and waste in health insurance. In this area, the ideas you mentioned about providing incentives to help employees make smart decisions can be very effective. Providing these incentives on a tax advantaged basis can be really a win-win. This can be done through vehicles such as flex credits, individual premium reimbursement plans, HRAs, HSAs etc. Of course I would be remiss if I failed to mention that each tax advantaged solution needs to be carefully reviewed so that the applicable rules are followed. For example, employer pre-tax contributions to HSAs may be a great solution but there are very strict comparability rules that apply to direct employer contributions to an HSA.
Addressing your ERISA discrimination issue – you are correct that ERISA 510 only precludes discrimination against individuals for exercising their rights under plans but is not violated by providing incentives for employees to voluntarily make choices or by redesigning plans to change coverage options available.
Did I get the bat on the ball on your issues?
Todd W. Martin
Reinhart Boerner Van Deuren, s.c.
While opt outs are used frequently, design is paramount to avoid risk. The factors to consider are many.
1. Determine the group’s benefit philosophy. An example is eflex. We pay 80% of the cost of the insurance plan, whether single or family. Some employers will cover only the employee, and require dependents to be paid by the employee.
2. In creating the opt out, don’t force or require someone to move to their spouses insurance or get an individual policy. The word force may violate ERISA, and getting an individual policy may violate small group reform in your state.
3. Under no circumstances create a “one for one” dollar amount. In other words, if the cost of the health insurance premium is $15,000 for the year, do not give $15,000 to move. Create a smaller amount as Lynn mentioned in her email.
4. In all instances of design strategy the employer should require a signed affidavit that affirms the employee has other coverage before any payment is given.
5. If offering a cash option or opt out, a section 125 plan is required. A POP plan will do.
6. If you are offering a cash out or cash option with an incentive attached to move to spouses plan, it is best to create a “cafeteria plan” with a menu of choices. An example, is some of the school districts in WI that offer a cash out to not take the school districts policy. The cash will be taxed unless the employee purchases another benefit such as an HSA or enrolling in the Health FSA or Daycare FSA.
My belief is this approach should be in every agents arsenal of service they provide or options to offer their employers. This is common practice with HR people and Benefit Consultants. Thank you to everyone who contributed to the article and discussion.
Please feel free to edit this and let me know of any changes or clarifications that are needed.