Medical Benifits - California
Sheila2008
44 Posts
We offer medical to our ee's and we are renewing this year. My question is...can my empoyer 'cap' how much he wants to contribute?
The plan that he is on right now states that he contributes 50% of the lowest plan available to each ee. He would like to make his contributions the same across the board..for instance he wants his contribution to be $150 towards any plan they choose. An example only: If they choose a higher plan that is $400, he would pay $150 of that and the ee would be responcible for the rest.
I know he doesn't have to offer medical at all, but if he does offer it, I want to make sure we are following the rules in doing so.
Comments
I suspect that there will be a problem with your employer's plan. Because the employer contribution does not slide in scale with the cost of the benefit, it favors employees who make more money. Whether or not it favors them enough to breach the stipulations of IRS pub 15b (see page 3) or not, I don't know. I don't know of any business that contributes on a flat basis. If you breach the highly paid employee favoritism requirement for exclusion from tax liability, the employer match has to be categorized as wages (post tax), which significantly reduces the value of offering the match in the first place.
Also, while you say "I know he doesn't have to offer medical at all[...]", that is really determined by your local labor market and not so much by your boss, despite what he may think. If offering health insurance is a requirement to be competitive for applicants and to retain employees, then he does have to offer it as a business necessity. Ask him if he'd like to experiment with recruitment and retention by not offering it.
Right now he pays 50% of the lowest premuim which is approx. $150 of a $300 plan..(that is for someone in their 40's). All of the tech's thus far are in their 20's. The plan quotes we received are based on age, not salary. If he offered $150 or more across the board that will enable our ee's to have less out of pocket cost. Basically, $150 (going by the qoutes) is the highest qoute of someone older) and would mean less cost to our tech's who are all in their 20's and are paid less. Those who are paid at a higher salary may choose the same lower plans....if not they can choose a higher one and know that they are responsible for the difference.
What I a meant by "I know he doesn't have to offer medical at all" is b/c the majority of our competitors do not offer medical....My employer offers medical, dental, vision and chiro.....chiro is at no charge to the employee....
Although are company is very small (9) my boss thinks that everyone should have medical, but he wants to make the benefit the same across the board, so that the employees with less pay who normally chose the lower rates get a greater percentage off...I hope I didn't confuse you more and I am so sorry for it...
Here are a couple ideas...
You can have a bona fide cafeteria plan that has only one option. That would solve most of the problem. Still, we do that and we pay on a percentage basis although the percentage differs depending on whether the component of the premium is for the employee, the spouse, or their child(ren).
There is, actually, a way to do pretty much exactly what you want, now that I think about it. Instead of having an employer match, you can have a plan that says the Company will pay X amount for benefits but you have to take the Company's medical insurance or demonstrate that you have equal or better coverage, in which case you can have the X as part of your pay check, instead. That is something I know is done. The only thing I"m not sure about is whether you can do this and have the amoutn awarded, the X, be less than the cost of the medical insurance on an employee-only basis. You'll need to hear from a better benefits person than me or talk to a lawyer for that one.
You have make sure that benefits don't favor highly compensated/key employees IF the plan is qualified (i.e. Section 125/401k/etc) for tax advantages (i.e. both the employer and employee get pretax deductions). I just did our testing for our Section 125 POP and it is my understanding that it has to pass two tests:
(1) Classification Test: # eligible employees from the first payroll of the current plan year compared to number of eligible highly compensated employees.
(2) Concentration Test: Total pretax insurance premiums eligible KEY employees divided by total pretax insurance premiums for all employees...gives a percentage....to pass the test, that percent must be less than 25%. So this test is going to be dependent on the # of key employees that you have and what benefit they are choosing. A key employee is defined as anyone who meets any of the following qualifications in either the current or preceding plan year: (a) officer with comp> $145000 (b) employee with more than 5% ownership or (c) employee with more than 1% ownership and compensation greater than $150,000.
I do know of companies that pay a speficied amount regardless of which plan the employee chooses, but am not sure how well it works with more than one choice. Your problem could be the 2nd test if the key employees are choosing a higher premium plan and the non-key are choosing a lower premium plan. But it surprised me here that I had the exact opposite...the key employees chose the lower premium (and more risk plan) and the non-key chose the higher premium (and less risk plan).
HRforME -- are your highly paid employees selecting a HSA qualified plan? If so, the reasons may be simply that they a) have enough money to cover the deductible and b) want to make use of the investment vehicles available under HSAs, which are very broad compared to most 401(k) plans.
They may also just be in better (perceived) health or they may just be risk takers (are they salespeople?)
I wouldn't have expected that result, either.
Nope, not an HSA...the main differences between the two plans are the deductibles/oop expenses. They would rather pay less each month on the chance that they won't meet the ded/oop. It was an interesting result...but then again, they tend to take more risk, because they have more reserves to back it up.