GROUP MEDICAL EXPENSE BENEFITS:PLAN PROVISIONS AND TAXATION

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GROUP MEDICAL EXPENSE BENEFITS PLAN PROVISIONS
AND TAXATION

• CHAPTER 12

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Eligibility

• Similar to group term life insurance

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• Group Coverage Discontinuation and Replacement
  applies to eligibility if an er changes insurers.
• No probationary period can apply to employees
  who were actively at work on date of new
  coverage.
• Preexisting conditions limited to lesser of new
  plan or old plan
• Employees not actively at work can have benefits
  limited to old plan's level until they are
  actively at work.

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Eligibility continued

• Dependents
• not eligible unless ee covered
• Effective same time as employee if proper
  payroll deductions authorized
• Includes spouse unless legally separated and
  unmarried children under 19, including
  stepchildren and adopted children
• Subject to a nonconfinement provision in lieu of
  an actively-at-work provision

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Children

• Adopted children covered on same basis as
  natural
• er-sponsored plans must recognize medical child
  support orders.
• Children eligible for coverage even if
• they were born out-of-wedlock,
• not claimed as a dependent for tax purposes,
• and/or they do not reside with the parent or in
  the insurer's service area.

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• Domestic partners. Some plans make coverage
  available to unmarried domestic partners. It may
  be available to opposite-sex partners and/or
  same-sex partners.

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Coordination of Benefits

• Purpose To eliminate reimbursement in excess
  of expenses

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Reasons for duplicate coverage

• Employee with two jobs
• Children covered under parent's and stepparent's
  plan
• Employee covered under employer's plan and
  spouses plan

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With COB provision

• each plan must pay as if it were only plan.
• COB provisions apply to group plans auto
  no-fault they do not apply to individual
  insurance.

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Determination of primary coverage

• employee is primary to coverage as a dependent.
• For children if parents not divorced or
  separated, policy of parent with earliest
  birthday in year is primary.

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For children if parents are separated or divorced

• Plan of parent with custody is primary.
• Plan of spouse of parent with custody is
  secondary.
• Plan of parent without custody pays last.

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Active employee is primary to retired

• If no other rule determines primary plan, it is
  plan covering the employee the longest.

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Benefits payable

• Determine allowable expenses
• Primary plan pays what it covers.
• Secondary plan pays remainder of allowable
  expenses.
• A few plans allow deductibles and coinsurance to
  be preserved, but most plans allow for payment of
  100 percent of covered expenses.

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Medicare secondary rules

• Employers with 20 or more employees must make
  regular coverage available to active employees
  over 65 and spouses of active employees over 65.
  Unless an employee elects otherwise, Medicare is
  secondary.

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Medicare secondary rules

• Medicare is secondary to employer's policy with
  respect to treatment of end-stage renal disease
  with dialysis or kidney transplants. However,
  Medicare becomes primary after 18 months of
  treatment. This applies to employers of any size.

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Medicare secondary rules

• Medicare is secondary for disabled employees
  covered under plans that cover 100 or more
  employees.

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Medicare carve-outs and supplements

• er wants to provide some extra coverage to
  retirees.
• Carve-out--Plan benefits reduced by expenses
  paid by Medicare
• Supplement--Provides benefits for certain
  expenses not covered by Medicare

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Termination of Coverage

• When it occurs For ee
• employment terminates
• ee ceases to be eligible
• master contract terminates
• overall maximum benefits received
• required contributions no longer made

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When termination occurs for dependents

• definition of dependent no longer met
• ee loses eligibility except for reaching maximum
  benefits
• maximum benefits received by dependent

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Continuation of coverage under COBRA

• 20 or more employees
• continue coverage for a time to employee or
  dependent if qualifying event occurs
• Must notify of right to continue
• Can charge 102 of premium
• 150 percent for disabled employees after 18 months

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Qualifying event

• Death of covered employee
• Termination of employment for any reason except
  gross misconduct
• Reduction in hours so employee no longer eligible
• Divorce or legal separation of covered employee
  and spouse
• For spouse and children, the employee's
  eligibility for Medicare
• A child's ceasing to be an eligible dependent

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Length of continuation

• 18 months when
• employment terminated or
• eligibility terminated because of a reduction in
  hours
• 29 months
• if employee meets SS definition of disability
• 36 months in other cases

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Can cease earlier if

• Plan terminates for all ees
• Qualifying beneficiaries discontinue premium
  payments
• Qualifying beneficiary becomes eligible for
  Medicare or becomes covered under another group
  contract

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Continued coverage in addition to COBRA

• Retired employees
• Continuation not required
• If done, usually through carve-out or with
  supplemental plan.
• PV(future retiree benefits) must now be shown as
  a liability.
• To contain costs retirees benefits are being
  reduced or eliminated

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Surviving dependents

• Not usually continued beyond COBRA period
• When continued--Coverage and contribution level
  is usually unchanged.
• Laid-off ees--Seldom beyond COBRA period
• Disabled ees--Often continued if definition of
  disability satisfied

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Extension of Benefits

• Applies to employee who is totally disabled at
  time coverage terminated
• Benefits continue for 3 to 12 months.
• Benefits may continue for any expense or only for
  expenses associated with cause of disability.

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Conversion

• without evidence of insurability
• employed for gt 3 months
• exercised within 31 days of initial termination
  of group coverage or ending of COBRA coverage
• Conversion policy similar to prior group
  coverage.
• may select a policy with lesser benefits.

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Claims

• require proof of loss.
• Maximum period for filing claim often 90 days or
  more
• Benefits assigned to provider of services.
• er has right to examine claimant
• its own expense and
• with the physician of its choice.
• subrogation provisions.

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Federal taxation

• er contributions deductible
• ee contributions deductible if overall medical
  expenses exceed 7.5 of adj gross Y
• Sole proprietors and partners deduct 25 of
  coverage cost

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Benefits not taxable under insured plan unless
they exceed expenses

• Benefits may be taxable to highly compensated
  employees if a self-insured plan is
  discriminatory with respect to benefits or
  eligibility.

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Questions?