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Course: Employee Benefits outline 2003
School: Wayne State University
Year: 2003
Professor: Sphice
Course Outline provided by Legalnut.com
  1. Laws that affect Plans:

    1. ERISA;

      1. ERISA imposes fiduciary standards and reporting/disclosure requirements on employee benefit plans.

      2. If ERISA doesn’t apply the ee may have an enforceable K right or if a trust then the ee may have a beneficial rt

        1. If ee voluntarily leaves employment b4 vesting health benefit the ee may be entitled to benefits under substantial performance if the deficiency of performance is minor

      3. Plans subject to ERISA: §300

        1. An ee benefit plan (welfare plan, pension plan ect)

        2. Established or maintained by an er

        3. Engaged in commerce or affecting commerce.

      4. Excludes:

        1. Government plans; aka Exam; City of Troy & group auto insurance is not within benefits covered by ERISA’s definition of benefits.

        2. Church plans

        3. Plans maintained o/s US

        4. Workers comp state plans

        5. Independent K’r is not an ee under Title I or ERISA. Look to degree of control, supervision and individual’s opportunity for profit and loss.

      5. Requirements;

        1. Written § 402(a)(1)

          1. Named fiduciary;

          2. Fiduciary duties

          3. Procedures for establishing and funding policy § 402 (b) (1)

          4. Procedures for amending the plan§ 402 (b) (2)

          5. Payment procedures § 402 (b)(4)

        2. Reporting and disclosure

        3. Preemption of state laws

        4. Claims procedure

        5. Enforcement

    2. HIPAA Medical Privacy Rules: (Health Insurance Portability & Accountability Act of 1996) (P 369)

      1. Applies to health providers and employer sponsored “health plans”.

        1. HIPAA is also administrative simplification § & use computers that talk to each other & there are privacy safeguards.

        2. Purpose is to “Protect health info”

        3. Health plan is defined as: medical, dental, vision, prescription drug pan, fsa.

        4. Both insured and self-insured plans are covered.

        5. A covered entity can’t use/disclose info w/o authorization from a patient, or from treatment of a patient. Covered entity is one that uses electronic data. The health plan itself is covered by the rules not the ER. “Protected health info” doesn’t need to link to treatment. The fact that you use BCBS is protected.

      2. HIPAA imposed rules:

        1. Conditions under which a plan may contain and enforce preexisting conditions

        2. The parameters for eligibility for coverage under a plan (preclude discrimination on the basis of health status).

        3. The rules regarding enrollment periods under a plan.

      3. When coverage begins: HIPAA; if ee can’t make it to work on first day of work can still get coverage; HIPAA says cant discriminate based on illness.

      4. Group health plans (3 types); a covered entity can’t use health info unless authorized law or indiv.

        1. Welfare benefit

        2. a

        3. a

      5. Limitations on preexisting conditions:

        1. A preexisting condition exclusion is permissible if:

          1. It relates to a condition, whether physical or metal, for which medical advice, diagnosis, care or treatment was recommended or rec’d w/in 6 months period ending on the enrollment date.

          2. It extends for a period of not more than 12 months (18 months in the case of a late enrollee) after the enrollment date; AND

          3. The period of exclusion is reduced buy the length of the aggregate of the periods of creditable coverage applicable to the participant or bene as of the enrollment date.

          4. ****Preexisting condition exclusion is NOT permitted for pregnancy; or for newborns or children who were adopted before the age of 18 who are covered as of the last day of the 30-day period, which begins on the date of birth or adoption.

            1. Exception: preexisting condition exclusion for newborns or adopted children can be applied in the case of a change of er’s if there is a 63 day or more break in credible coverage preceding the coverage of the child by the new er. Reg §54.9801-3T. p371.

        2. Eligibility to enroll:

          1. Can’t be based on health status; medical condition; medical history; genetic info; §9802(a)(1).

      6. Benefits must be “uniformly available to all similarly situated:

        1. If ee tries to commit suicide then must cover b/c depression is a mental condition

        2. Cant exclude injuries from domestic violence DOL Reg §2590.702(b)(2)

      7. Special enrollment periods: (P 373)

        1. Group health plan must provide an indiv with a special enrollment period in 2 situations:

          1. If you loose coverage: If ee or dependant previously declined coverage b/c he was covered under spouses plan and is now losing that coverage. IRC § 9801 (f)(1)

          2. Acquire a new dependant: Dependant has become a dependant through marriage, birth, adoption IRC § 9801(f)(2)

            1. If these conditions are met the plan must offer a dependant a special enrollment period of at least 30 days... P374

      8. Penalties; Er’s Failure to comply:

        1. $100 per day for non compliance for each indiv IRC § 4980D(a) ERISA §502(c)(1)

        2. Er’s defense: “safe harbor” reasonable cause/due diligence. IRC § 4980D©

        3. Offense is 10 yrs in jail and a 250K fine.

        4. Ee can recover benefits promised

      9. MI mini HIPAA; groups < 50 > 50 ???

        1. 6 month look back and 12 month look forward.

        2. Says HMO’s and BCBS cant have preexisting conditions clause; may be excluded as not tax favored. §104,105 if reimbursed its included in income; not deductible by er 213(d)(9).

      10. HMO’s and BCBS can’t have preexisting condition clauses.

      11. Tax non discrimination rules:

        1. § 105(h) “not to insured plans”

        2. Cant discriminate based on eligibility or benefits

        3. Maternity benefits; cant limit hospital stays to less than 48 hrs to mom or child.

        4. Mental health parity; requires parity btwn coverage for general health & mental health. Doesn’t apply to er w < 50 ee’s or if w/increase cst >1%

    3. ADA; p 105; (age discrim and employment act “ADEA”) contains 5 acts see page 126 in bk

      1. ADEA covers er affecting interstate commerce with at least 20 ee’s for each working day in 20

      2. Protects ee’s who are 40 or older against certain reductions in ee benefits and employment practices (hiring, discharge, compensation). 29 USCA § 631.

    4. Title VII of the Civil Rights Act of 1964; p121; p406

      1. Discrimination based on race, color, national origin, sex, pregnancy, handicap.

      2. Applies to er’s with 15 or more ee’s in a 20 week calendar considering the current and previous yr. Two causes of action:

        1. Disparate treatment theory “intentional discrimination”

        2. Disparate impact; show significant disparate impact.

    5. Equal Pay Act; p 125

      1. Discrimination based on sex; 29 USC §206(d)

    6. IRC;

    7. MEDICARE:

MEDICARE is a Federal Act established to provide hospital and medical insurance for aged persons under the Social Security Act 42 U.S.C.A. §1395. Medicare was created with the intent provide benefits for person’s age 65 and older and is funded by FICA payroll withholdings. The Medicare Act is comprised of Part (a) and Part (b). Part (a) discusses a recipients benefits and Part (b) discusses supplemental medical insurance, long term care and prescription drugs.

The Medicare program was intended to benefit all persons age 65 or older regardless of need. That means millionaires can make a claim through it. Medicare is a cost-sharing program between patient and provider. Patient pays the co-pay first, and then Medicare pays the rest subject to care limits. Medi-gap insurance is supplemental medical insurance that is intended to cover the patient’s co-pay expenses.

Medicare covers some nursing home expenses. Medicare does not cover some necessary patient expenses such as: prescriptions and long term care. Medicare secondary payor rules make Medicare secondary to no-fault and workers compensation for persons over 65 years of age. If the employer has over 100 employees then Medicare is secondary. The employer has to give the employee a choice of making Medicare primary or secondary.

    1. Medicare: p423

      1. Medicare is secondary to a private plan to the extent that Medicare only pays benefits if the private plan does not pay or cannot reasonably be expected to pay benefits. Gradual shift to making the private er plan primary always.

        1. Medicare is secondary to private health plans for active ee’s age 65 and over and for the spouses of active ee’s who are 65 and over regardless of the ee’s age.

        2. Medicare is secondary to private health plans for the first 12 months of treatment for end stage renal disease. P424

      2. Medicare is Primary payor for disabled retirees age 65 and over; it is unclear whether Medicare is secondary for disabled retirees age 65 and under who are covered by a plan maintained by an er with 100 or more ee’s.

      3. Generally;

        1. Not based on need

        2. Cost sharing btwn patient & provider

        3. Medi-gap insurance (private insurance) pays deductible and co-pays; i.e. it fills in the gaps.

        4. Covers some nursing home exps

        5. Doesn’t cover long term care or prescription drugs

    2. Medicaid:

      1. Based on need must have less than 2k of assets

      2. Fed program and states help operate

MEDICAID

MEDICAID (Title XIX of the Social Security Act) is a federal entitlement program for health care specifically intended for low-income individuals. While it is a federal creation, Medicaid is administered in each state under a “State Plan” created by the state after following federal guidelines. However, states do have the discretion to establish eligibility and benefits. To qualify for Medicaid you have to demonstrate a financial need (i.e. must be “deservingly poor”). Both the state and federal government fund Medicaid. There is no co-pay or deductible. Medicaid covers condoms, birth control but not abortions.

    1. Family Medical Leave Act FMLA p432

    2. Doctrine of Reasonable Expectations:

      1. In general, cts will protect the reasonable expectations of applicants, insured and intended beneficiaries regarding the coverage afforded by insurance K’s even though a careful examination of the policy provisions indicates that such expectations are contrary to the expressed language. See Handout.

 

  1. Math calculations;

    1. Look at each benefit to see if discrimination test applies and see whether it passes or fails

    2. 1st define the control group 50%

    3. 2nd is there 5 or fewer entities in a control group? Who are ee’s of the entity?

      1. Parent/sub: own 80% or more of S (Control)

      2. Bro/sister (5 or fewer people own 80% or more)

      3. Combined p/s b/s

      4. Leased ee’s; if full time for 1 yr and under control of ee then ee’s.

 

    1. Discrimination test: Who are the key ee’s P466. §4.16(i)(1)(A)

      1. Ee’s making >$130k that is an officer §318 attribution rules apply

      2. 5% owners

      3. 1% owners earning >$150k

    2. Highly Compensated EE’s:

      1. One of the five highest paid officers

      2. 10% shareholders AND

      3. The highest 25% of all ee’s

    3. Life insurance: yes discrimination test

    4. Health ins: if non-insurance then discrimination test; if insured then NO test for discrimination

    5. Dependant care:

 

 

 

 

 

 

 

 

  1. Health Plans: ERISA 702

    1. ER: §162 deductible by er; Self employed persons can deduct 100% of the cost of health insurance covering himself, spouse and dependants §162(l)(2)(B),

    2. EE: §104 excludes from income amts rec’d from er accident or health plan that ee paid for

      1. EE: §105 (b) excludes amts paid to the taxpayer directly or indirectly to reimburse the tp for expenses incurred by him under §152 for medical care defined under 213(d).

      2. If included in ee’s income b/c its discriminatory then not subject to FICA or FUTA §3121(a)(2)(B)

    3. Defines Medical exp: §213 defines medical expenses: includes not only expenditures for diagnosis, treatment or prevention of disease or for the purpose of affecting the structure of the human body, and transportation exp incurred primarily for medical care (radio keratotomy and dental exp is included and included is cost of prescription smoking cessation aids) ; not for general health (swimming pool, gym membership) (pmt can come from er or insurance co); §213(d)(9) cosmetic surgery is excluded and not tax favored.

      1. Benefits are limited to spouse and dependants sec152

      2. Plan m/be for ee’s not shareholders 105(e); if the ee’s are also shsrs then ok 105(e).

      3. Self-employed persons are not treated as ee’s under §105 and benefits rec’d by them are not treated as rec’d under an accident/health plan.

      4. EXAM holistic medicine. Would BCBS cover it?

      5. §213(d)(9) exclusion for cosmetic surgery

    4. Policy reason for deductible: Want ee’s to use health care wisely so make them liable for a portion of the costs. 80 – 20 rule. 80% of the expenses deal with 20% of ee’s

    5. Prescription Contraceptives: The exclusion of prescription contraceptives violates Title VII of the Civil Rights Act 1964, which prohibits sex discrimination (including pregnancy discrimination) in the workplace by er with at least 15 ee’s.

      1. Surgical contraception is also covered: vasectomies and tubal legations.

      2. Pregnancy Discrimination Act (PDA); explicitly require equal treatment of women affected by pregnancy, childbirth, or related medical conditions in all aspects of employment, including the receipt of fringe benefits. Can’t treat new hirees that are pregnant or affected by medical conditions differently from others who are similarly able or unable to work. Also precludes discrimination based on discrimination against women based on their ability to become pregnant.

    6. Infertility; Sak v Franklin Covey; woman c/not have children so sued under ADA and ct held that infertility was a disability but that Franklin Covey didn’t discriminate b/c it didn’t offer anyone infertility coverage.

    7. Oral Contraceptives decision: EEOC decision said by not covering oral contraceptives for women; that were discriminating based on pregnancy. EEOC interpreted the pregnancy discrimination case and said can preclude contraceptives from a plan since only affects women. Discrimination based on pregnancy.

    8. Non discrimination rules: p357

      1. Highly compensated ee’s may be taxed on reimbursements from a discriminatory “self-insured” medical reimbursement plan.

        1. Self-insured plan is discriminatory as to (1): eligibility: (P358-9). This means all ee’s and ee’s dependant rec the same. 1.105-11c3.

          1. Must benefit at least 70% of all ee’s

          2. Must benefit 80% of all ee’s eligible for benefits under the plan if 70% or more of all ee’s are eligible to benefit

          3. OR must benefit a classification of ee’s found by the secretary of the Treasury not to be discriminatory in favor of highly compensated ee’s §105(h)(7)

            1. Excluded ee’s: Reg§1.105-11(d)

              1. ee’s who have not completed 3 yrs of service

              2. ee’s under 25

              3. part-time ee’s (under 35 hrs week) p359

              4. ee’s under a collective bargaining agreement

              5. non resident aliens

          4. Discriminatory as to (2) benefits:

            1. Must provide the same benefits for all ee’s

      2. Exam Q; said that executives rec’ physicals and other ee’s didn’t. Is this discriminatory? No b/c the reg’s specifically exclude this so none is included in executive’s income.

      3. §702 of ERISA says that group health plan can’t discrimination b/c of health status and can’t refuse to enroll or provide different benefits or change the enrollment date.

    9. Coordination of Benefits:

      1. Western Case”; start out with your plan as being primary. For kids: birthday rule and gender rule; i.e. the parents whose birthday is 1st uses his or her insurer to pay and the gender rule says that male’s insurer pays. No plan would have to pay more than if it were the only plan.

        1. Ex: talk about “benefit minus benefit policy”; to exclude double dipping;

      2. Coordination of benefits with No Fault;

        1. Rule: any plan with provision is primary. Birthday rule

        2. No fault. MI rule is that if NF coverage and plan coverage then health ins is primary; if NF coverage and no health plan coverage then hp is primary. If no NF and HP coverage then NF is primary. If neither HP nor NF then double dip.

    10. Retiree Medical: p435;

      1. ERISA permits an er to modify or terminate welfare benefit plans, including retiree health coverage. However, if a plan does not specifically reserve such a right to the er then the ee may have a K right btwn the er and ee which can’t be broken without consent by both parties. P436.

        1. Look at brochure that could bind the er even if they contradict the plan to see if ee “reasonably relied on it”.

      2. The burden of proof to show that benefits vested is on ee. P437.

      3. EXAM; can an er change coverage 5yr later than affects now retired ee’s? K principles & unilateral K; no general right to amend; need language in plan to revoke. Then look at other clauses for evidence.

      4. Uaw v Yardman: cases stands for the rule that there is an “inference” not a “presumption” of lifetime coverage FASB 106 lifetime coverage rule.

    11. BCBS;

      1. Would BCBS cover experimental, unproven treatments?

    12. PPO’s;

      1. Competition among providers to bid on Ppo model.

    13. HMO’s; p411

      1. The doctors are ee’s. There are K’s with the doctors.

      2. Restrictive with regards to provider choice. P413

      3. Self funding; 3rd party administrator

      4. Advantages;

        1. Don’t get bill until later (cash flow benefit)

        2. Greater flexibility in design b/c no ERISA

        3. Stop loss; on top “liability insurance” once claims reach pt er gets reimbursed. Specific attachment pt based on that specific individuals claim and aggregate attachment point look at all ee’s.

    14. Eligibility requirements; for health insurance

      1. § 105(b) certain benefits to spouse and dependants (§152) are not included in income

        1. Domestic Partners;

          1. § 105(b) benefits are not includable if medical care under § 213(d) if to a spouse or dependant. Domestic partner is not a spouse (because to be a spouse requires a legal union of 2 people). § 152(a)(9) defines a dependant; where you pay a majority of support; therefore a domestic partners maybe a dependant. If not a dependant then benefit is includable in income.

    15. Federal requirements to a health plan;

      1. No abortion requirement but yes to coverage for complications after abortion. See midterm

      2. Moral Case; EXAM 160 Mich App 697; the insurance co had to provide coverage.

    16. Multi er benefit plan – more than one er contribute and have even number if er and even number of ee’s § 303© of Taft Hardley Law (29 USC 186) § 186© Through collective bargaining agreement.

      1. Joint board, created by collective bargaining agreement.

    17. MEWA’s: p332; illegal insurance co’s. MEWA’s METS mini illegal insurance co; problem was that some were entrepreneurial and there wasn’t any $ for LT use. For ERISA – if it’s a single plan §514 of ERISA pe-empts state law; for uninsured plans.

    18. VEBA’s voluntary ee benefits association § 501©(9) of irc usually set up for trusts. VEBA is a separate entity so can deduct pmts immediately. IRC §419 applies and says can only deduct qualified costs. Short term 17.5% medical 35% of total costs. VEBA’s provide benefits and no tax on earnings and irs took away VEBA's §419 con only deduct a limited amt.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Group term life Insurance: p478

    1. Death benefits are excludable §101(a) p460. This is true whether group policy, split dollar. The exclusion doesn’t apply to interest §101(c).

    2. ER cant take a deduction of the premium payment on the life of an officer where the corp is a bene §262

    3. ER deduction §162. Ordinary and necessary expenses.

    4. The 50k of insurance benefits is excluded if 4 requirements: IRC §79

      1. Must provide a general death benefit that is excluded form income under §101(a).

      2. For ee’s;

        1. Directors are not ee’s Reg §1.79-0

        2. Partners and self employed indiv and 5% owners are not ee’s under §79

        3. Insurance is provided directly or indirectly by er

        4. The insurance is provided pursuant to a formula that precludes indiv selection of the insurance coverage. I.e. the amt of coverage is based on factors such as age, yrs of service.

      3. Life insurance provided to a group of ee’s cannot qualify as group term life insurance unless at some time during the yr it is provided to at least 10 full time ee’s.

        1. 2 exceptions to the 10 ee’s requirement: p480

          1. Insurance is provided to all full time ee’s of er

    5. “Insurable Interest”: EXAM; exists where the insured derives pecuniary benefit or advantage by preservation and continued existence of property or would sustain pecuniary loss from its destruction.

      1. Reasons for insurable int: Must show pecuniary interest

        1. Prevent gambling K

        2. Eliminate incentive to destroy life

        3. Prevent economic waste

        4. Prevent fraud on insurers

    6. MI re-designation requirement: statute avoids designation if divorced. If divorce and spouse was never removed from beneficiary status then the estate takes insurance proceeds and not the secondary beneficiary

 

    1. Oversee death cases:

    2. Nondiscrimination test for group term life insurance: cant discriminate in favor of key ee’s based on benefits

      1. Control group

      2. Must cover 70% of all ee’s

      3. At least 85% are not key ee’s

      4. ??

      5. Benefits applied to key ee’s m/be applied to all

      6. If groups with different benefits its ok if each group passes the discrim test

      7. If discriminate then key ee’s include in income rates or actual (which ever is greater)

      8. No subject to FICA for amounts >50k. Not subject to FUTA.

    3. Viatical Settlements or acceleration: §101g if have life expectancy <24 months then will be treated as if you died and therefore non-taxable. Must be chronically ill. Nichols v. Boyson; this is a purchase of an asset so no insurable interest is required.

    4. Split dollar: PURPOSE: (EXAM) (P 475)

      1. The benefits of a life insurance policy are split btwn the er and ee. Ex. Er pays the policy premiums and is entitled to the cash surrender value of the policy. If ee dies then er can recover the cash surrender value & ee’s bene is entitled to the death benefit.

      2. 2 methods used to structure split dollar:

        1. Endorsement method;

          1.  

        2. Collateral method;

          1. 1

      3. Tax consequences;

        1. Treat split dollar in one of 2 ways; p475.

          1. Annual increase in cash value is taxable to ee under §83 OR

          2. The amount of cash value will be treated as a below mkt loan subject to imputed int §7872

        2. Tax to ee;

          1. If premiums are paid by er then ee reports as taxable income an amount determined by applying the term rate to his share of the death benefit.

      4. Reverse split dollar; p477

        1. Ee owns the policy and its cash value while er is entitled to death benefit.

        2. Er has current income to the extent that ee pays the premium§61

    5. Estate of Brown:

 

 

 

  1. Disability Plans; p487

    1. Tax treatment;

      1. §106 (§152 for dependants) excluded from ee’s gross income b/c treated as accident and health bene;

      2. Amounts rec’d for permanent loss (e.g. 5k for lost hand) is excludable §105© p489.

      3. Tax credit §22 (m/be retired or disabled and were permanently and totally disabled when they retired OR attained the age of 65 without regard to disability) p490.

    2. Consideration when designing:

      1. Concern of philosophy; ex. Catholic church not covering abortion; so you take on a “social obligation”

      2. Competitive economic; to attract young ee’s and reduce pension costs

      3. Legal/financial; risk tolerance and contractual obligation.

      4. Take into consideration the ADEA and Title VII of Civil Rts act when drafting p487

    3. Disability insurance;

      1. Eligibility,

      2. Waiting period,

      3. st/lt disability,

      4. Three definitions of disability,

      5. Permanent and serious disfigurement

      6. List of specific disability

      7. Want to give an incentive for ee’s to return to work (p493)

      8. Offsets are based on other benefits

    4. Disability defined:

      1. P490

    5. Exclusions and preexisting conditions; define whether overtime is included when considering wages.

    6. Treating Physician rule;

    7. Disability buyouts are ok. Payment for loss of a limb is not included in income §105© (they are not classified as retirement benefits)

    8. Disclosure and drafting issues “SPD”; EXAM drafting on final (capitalize terms, plain English, think of contingencies) p580.

    9. NON-DISCRIMINATION RULES:

      1. ADA; prevents er’s form discriminating against disabled ee’s. EE must have a physical or mental impairment that prohibits ee from conducting his “life activity”. To be protected (1) m/be employed by er w/ 15 or more ee’s (2) m/be a qualified indiv; can’t perform the central functions of the job (3) severe impairment “substantially limiting of a life activity”. . EEOC view of “subterfuge”: er m/ show it’s a bona fide plan “subterfuge” (escape or concealment---View that can’t provide lessor benefits to ADA people, but can provide lessor benefits to ALL ee’s even if ADA are disproportionately affected).

        1. Does ADA protect HIV? EXAM; if “A” symptomatic is the person disabled? A major impairment is the in ability to reproduce. Sct said HIV prevents a person from conducting a “life activity” even if c/ still have children. This is just what Sct said.

        2. Does ADA protect Infertility? EXAM; is it a disability? Can exclude all treatment of medicine that’s why it’s non discriminatory.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. COBRA: (P 380) (Consolidated Omnibus Budget Reconciliation Act of 1985) Cobra is located in §4980 of IRC.

    1. Provides terminated ee’s and dependants an opportunity to continue group health coverage. Cobra applies to ER’s who employ >= 20 ee’s and those that sponsor health plans. ER’s with less than 20 ee’s on at least 50% of the working days§54.4980B-2.

      1. Self-employed indiv are not counted as ee’s.

      2. Exam: question said that corp had 15 ee’s. Cobra doesn’t apply b/c had less than 20 ee’s. Applies to er’s w/ 20 or more ee’s. Spouse of ee or ee dependants can elect to continue coverage if: death, divorce, eligible for Medicare or mo longer a dependant child.

      3. When changes can be made:

        1. HIPAA Health Insurance Portability and Accountability Act of 1996 special enrollment rights: permits coverage following the loss of other health coverage from the other spouse, or if a person becomes the spouse or dependant of an employee through birth, marriage, adoption.

    2. Doesn’t apply if gross misconduct; illegal activity. There is no definition in regulations. Must fill out a police report.

    3. IF SS benefits charge 150% for 19th - 29th months 102% for 1st 18 months. 18-month extension for qualifying events. 29 months extension for SS disabled.

    4. Klimsco case

    5. Election:

      1. Have 60 days to make the election; each person has separate right to elect

      2. Each qualifying person in family has a right to election.

      3. EE and his spouse, children & step-children can make a claim if previously had health benefits

      4. 30 days grace period. Have 60 days to elect coverage once get notice then have 45 days to pay 1st pmt §602(2)(a)(i)

    6. Charges/Payments:

      1. ER can charge up to 102% of er’s cst to ee. EXAM; what is the limit the er can charge for extended coverage?

        1. Administrative csts can be included in premium

      2. If pmt is made, but it is not for the full amount, a shortfall no greater than $50 or 10% of the amount required will not automatically be treated as a failure to make a timely payment. If with $50 or 10% then er may notify the participant or the qualified bene and he or she has 30 days in which to make the additional pmt. §4.4980B-8

      3. Ee can sell his coverage right as part of severance package/ Can buy cobra rts form ee’s “cash out”

      4. Beneficiary doesn’t have to be the one paying the premiums Ex. The hospital can pay for it so that it gets reimburses.

    7. Length of coverage:

      1. Length of coverage is 18 months if termination (except gross misconduct) 29 months if disabled 36 months for other qualifying events.

      2. Cobra coverage extends for 18 months if death, ee turns 21, divorce = 36 months of coverage. Disability adds 11 months. B&C can get SS benefits if it’s that time.

      3. Qualifying event that extend coverage-continuation (continuation coverage cant be dependant on insurability §4980B(f)(2)(D)): (P384)

        1. Waiver of Cobra: Must election during the election period or its lost (if waiver Cobra election you can revoke waiver anytime b4 the end of the election period. Er’s doesn’t have to provide retroactive coverage; coverage is as of the sate the waiver is sent §54.4980B-6:

        2. Continuation coverage is for 18 months after the qualifying event when a covered ee is terminated or has a reduction of hours. P386.

          1. Qualifying Events; Reasons for continuation: p383

            1. ee death

            2. ee’s termination or reduction of hrs

            3. Divorce or legal separation

            4. ee become entitled to Medicare.

            5. Dependant ceases to become a dependant

            6. Chp 11 bankruptcy; has special rule: 54.4980B(f)(2)(B)(i)(III) ERISA §602((2)(A)(iii).

          2. If a qualifying event (other than bankruptcy) occurs during the 18 month period that follows the covered ee’s termination or employment or reduction of hours, the period over which continuation coverage must be provided is extended to 36 months following the date of the initial qualifying event. §4980B(f)(2)(B)(i)(II). Ex. if ee dies 9 months after losing his job then Cobra coverage must be offered to be extended to 36 months after the date the ee loses his job. P386.

          3. Continuation election notice must be sent 180 days b4 expiration of Cobra IRC § 4980(f)(2)(E)

          4. An individual who is disabled within the first 60 days of Cobra coverage, and is so determined by the Social Security Admin with 18 months of beginning of Cobra coverage period, can qualify for an 11-month extension of Cobra coverage and 11-month extension also applies to all qualified beneficiaries with respect to the indiv. §4980B(f)(2)(B)(i).

            1. These 11-month extensions are not available unless the qualified bene notifies the plan administrator of the determination of disability within 60 days of the determination and before the expiration of the 18-month period following the qualifying event. P387.

            2. The permissible charge for continuation coverage is 150% of the applicable premium for any month after the 18th month rather than 102% of the applicable premium §498B(f)(2)©.

        3. If ee becomes qualified entitled to Medicare, the coverage period for qualified beneficiaries other than the covered ee for the for such event, or for any subsequent qualifying event is the 36 month period beginning on the date the ee becomes entitled to Medicare §4980B(f)(2)(B).

      4. Gross Misconduct can preclude Cobra IRC § 4980B(F)(3)(b); however when er fired an ee in a good faith but mistaken belief that the indiv had made fraudulent disability claim, the er could not deny COBRA coverage on the grounds of gross misconduct.

    8. Events that cut short the maximum period:

      1. er ceases to provide any group health plan to ee.

      2. The ee fails to pay premiums due

      3. The qualified bene becomes covered under another group health plan that does not contain any exclusion or limitation with respect to any preexisting condition of the bene or

      4. The qualified bene becomes entitled to Medicare benefits under Title XVIII of the Social Security Act. §4980B(f)(2)(B).

 

    1. Multiple coverage:

      1. If elect Cobra and then get other coverage – Cobra is terminated. If have other coverage 1st then elect cobra its ok.

    2. Notice: (p391)

      1. Upon commencement of coverage, an ee group health plan covered by Cobra must provide written notice to each covered ee and his spouse of the rights provided by Cobra within 30 days. 4980B(f)(6)(A). p391.

        1. Failure to notify each covered ee and ee’s spouse of Cobra rts at commencement of coverage or who fails to notify any qualified bene of his rts under Cobra is subject to a fine of $110 per day from the date of such failure or refusal. And cts have discretion to order relief as they see fit. §502© of ERISA

      2. Penalty for failure to provide notice 502© up to $110 day and 60 days applies only after rec’d notice. Max penalty is $11,100 plus cost of health care incurred by ee’s.

      3. Can add a new spouse and new children

      4. Initial notice m/be given to ee and spouse. 2nd notice is to ee, spouse and dependants not living with spouse.

    3. Penalties;

      1. Penalties for not sending cobra notice are $100 per day (civil penalty) under ERISA. b/c ERISA preempts state law.

    4. Exempt from Cobra requirements; p382

      1. Churches

      2. Gov agencies

      3. Er’s w/ less than 20 ee’s

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Medical savings accts:

    1. Created by HIPAA

    2. MSA’s have large deductibles ($1,462.50 single; $3,375 for couple: is maximum deductible that can be deducted under §162); And any thing above the deductible is paid by the insurance; ee and msa pay the deductible

      1. 2003 yr deductible single is 1700-2500 & out of pocket is 3100; family 3350-6150 and out of pocket is 5700.

      2. For drugs – b/c high deductibility in msa § 220(1)(A)(ii): so can set up msa for prescription drugs w/o high deductible and another msa w/ high deductible for health care.

    3. Eligible persons: cant be covered by another health plan §220©(1)(A)

      1. Partners can set this up for themselves

      2. EE Or (not and/both) the er may contribute

    4. Max can contribute per yr is 65% of annual deductible.

      1. If don’t use it in 1st yr the money rolls over in next yr and next yr er contributes same amount in next yr.

    5. Money can be used for: can’t be used for something already paid for; can be used to pay for cobra – health insurance. No use it or lose it rule.

      1. Funds spend by msa for medical are not taxable.

    6. When you die it goes/pays to surviving spouse; if no surviving spouse then $ goes to decedents estate. Can get $ out b4 you die but there is a 15% penalty if non-qualified use of $.

    7. Pay income tax on amount used. It’s like an ira b/c if don’t use it can take $ out and live off of it.

    8. MSA’s can’t be established through a cafeteria plan.

    9. Cap on how many can be established.

 

  1. Flexible Spending Acct;

    1. This is an arrangement where incurred expenses maybe reimbursed and the maximum amount of reimbursement available to a participant for a period of coverage is usually equal to the participant’s contributions.

    2. Two common types of FSA’s are health FSA and dependent care FSA’s.

      1. Health FSA;

        1. A Health FSA must qualify as an accident or health plan (i.e. it must exhibit the risk shifting and risk distribution characteristics of insurance). The HFSA must provide “uniform coverage” throughout the coverage period. This means that the maximum amount of reimbursement (i.e. the annual election) must be available to participants at all times. So if ee contributes 100 per week, 1200 m/be available at any time during the plan yr (properly reduced by prior reimbursements) without regard to the ee’s actual contributions to the plan at that time. The plan may not accelerate the payment schedule based on claims that the ee made.

        2. Reimbursements are permissible for medical expenses as defined in §213 with exceptions of premiums for other health plan coverage

        3. FSA are subject to use it or lose it rule. Amounts unused by the participant at the end of the plan year are forfeited. If this was not the case then the FSA would be a deferred compensation plan.

      2. Dependant FSA;

        1. Same as above except that DFSA coverage does not have to be uniform during coverage period. Thus, a participant is only entitled to reimbursement of amounts actually contributed to the plan and available in the participant’s acct at any given time.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. LT Care Insurance:

    1. Qualified LT care insurance is treated as an accident and health insurance contract under § 104 – 106. This means that er provided coverage and benefits it pays is generally not includable.

    2. Long term Care Services: is defined as “necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services and maintenance or personal care services that are:

      1. Required by a “chronically ill indiv” AND

      2. Provided pursuant to a plan of care prescribed by a licensed health care practitioner.

    3. DEFINED: “chronically ill indiv”: (p453) is one who, during the preceding 12 month period has been certified by a licensed health care practitioner as either:

      1. Being unable to perform at least two “activities of daily living (i.e. eating, toileting, bathing, dressing…) for a period of at least 90 days due to a loss of functional capacity; OR

      2. Requiring substantial supervision to protect such an indiv from treats to health and safety due to severe cognitive impairment.

    4. DEFINED health care practitioner: MD, DO, podiatrist, RN, social worker and other indiv as prescribed by Secretary of Treasury.

    5. Special rules for terminally ill:

      1. The $175 daily limit on excludable LTC benefits doesn’t apply to terminally ill indiv & terminally ill requires “reasonable expectation of death with 24 months from date of certification.”

    6. Must be included in the plan: p452.

      1. Provide only qualified Long Term Care services which are “necessary diagnostic, preventative, therapeutic, curing, treating, mitigating and rehabilitative services and maintenance or personal care services

      2. Up to $175 ($220 in 2003) per day will be excludable without regarding to indiv actual long-term care exps). Amounts in excess are includable in income.

      3. A chronically ill indiv is somebody who has been certified by a licensed health care practitioner.

      4. Contracts can only provide qualified LT care services

      5. Be guaranteed renewable

      6. Not provide a cash surrender value or other monetary value except for refunds of premium upon death or surrender

      7. Cannot duplicate Medicare benefits but it can supplement them.

      8. Can’t be offered as part of a cafeteria plan or flexible spending acct and they are NOT subject to COBRA.

      9. ER must make annual report & failure to do so results in $50 fine.

    7. Tax aspects – premiums are deductible by ER § 162 if reasonable compensation. Not includible in ee’s income unless § 213(d)(10)(A); limit based on age to $250/yr based on age bracket.

      1. Ee’s may NOT pay their premiums for LTC on a pre-tax basis through a cafeteria plan or FSA.

      2. Un-reimbursed LTC exp’s are itemized deductions subject to 7.5% floor.

      3. Self-employed persons take a page one deduction.

      4. LTC doesn’t provide for an accumulation of cash.

    8. Excluded from cobra

    9. LTC insurance will NOT constitute a “qualified benefit” under a cafeteria plan §125(f). p452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. Cafeteria Plan;

    1. §125 cuts through the constructive receipt rule

    2. Requirements:

      1. Must allow the ee’s a choice btwn two or more benefits consisting of cash and certain qualified benefits.

      2. Must be a written plan that includes:

        1. Specific description of each benefit available under the plan and the period of coverage.

        2. The rules governing which ee’s are eligible to participate

        3. Procedure for making an election

        4. The manner in which er contributions may be made such as by salary reductions agreement btwm the er and ee

        5. The maximum amt of er contributions avail to any participant

        6. The plan yr.

      3. Ee: present and former ee’s & spouse; but NOT self-employed indiv or S-corp 2% shr or partners

      4. Cant offer any benefit which defers receipt of compensation §125(d)(2)

      5. Qualified benefits:

        1. Accident or health coverage §105 & §106(medical, hospitalization and disability insurance

        2. Group term life insurance §79

        3. Dependant care assistance §129

        4. Adoption assistance §137

        5. 401k plan of §170(b)(10(A))(ii)

      6. NOT qualified benefits;

        1. Archer Msa medical savings accts; §106(b)

        2. meals, ee discounts, lodging, moving exp’s, De minimis benefits

        3. Scholarships §117

        4. Educational assistance §127

        5. Certain fringe benefits §132

        6. Qualified LTC insurance §7702B

    3. When election to change status: EXAM when can an ee cancel coverage?

      1. Change in status: revocation of election; Election is irrevocable and can’t be revoked unless there is an exception.

        1. HIPAA

        2. Change in status (Divorce; Change in # of dependants; Change in employment status; termination or (Reduction of his hrs (30 hrs or less)); Change in residence; and for purposes of adoption assistance, the commencement or termination of an adoption proceeding.) §1.125-4©

        3. Judgment, decree order: §1.125-4(d)

        4. Entitlement to Medicare or Medicaid: §1.125-4(e)

        5. Change in contributions to 401k plans; §1.125-4(h)

        6. Significant cost of coverage increases; §1.125-4(f)

        7. Family medical leave act; ee will be reinstated upon return to work §1.125-3

    4. Types;

      1. Full flex; have $1000 & get to chose options; hmo, life insurance

      2. Premium Pmt Plans: allows ee to reduce compensation & rec …

        1. Negatives (1) reduces SS; (2) reduces disability amt b/c disability is based on salary after reductions

      3. Flex spending acc: (considered a cafeteria plan under §125 of IRC) you reduce compensation & put $ into an acct to pay for health benefits; it’s a mini insurance policy. (2 types) (1) Health FSA; these reduce compensation by 1k and use $ to pay for nondeductible (2) dependant care FSA reduce salary. EXAM when submitting a claim how much is covered?

        1. Use it or lose it rules

        2. Advantage:

          1. Higher deductible lowers insurance cst for er

          2. About 50% of participants may never use the insurance portion of the plan

          3. Encourages ee participation in the planning of their health care

        3. Disadvantages;

          1. Not part of cafeteria plan

          2. Ee’s may not see the program as beneficial

      4. Bonus opt out; if ee waives coverage then get extra $100 per month. Aka pmt in lieu of pr opt out bonus

 

    1. NON DISCRIMINATION RULES; Plans that favor highly compensated ee’s;

      1. Highly compensated ee; §125(b)(1)

        1. An office

        2. Shr who owns more than 5% of voting power of all classes of er stk

        3. ee that is highly compensate based on facts and circumstances

      2. A plan favors key ee’s if more than 25% of the total of the non-taxable benefits you provide for all ee’s under the plan go to key ee’s. A key ee is: §125(b)(2)

        1. Am officer with an annual pay of more than $130k

        2. A 5% owner of your business

        3. A 1% owner whose annual pay was more than 150k.

      3. Not discriminatory if plan is maintained under a collective bargaining agreement.

 

  1. Severance Pay:

    1. SEVERANCE PAY DOESN’T HAVE TAX DISCRIMINATION RULES

    2. ER must want to provide it to attract highly compensated ee’s to stay /w co.

    3. Its also a way of buying retirements/ resignations

    4. Buying ee out releases er from lawsuits

    5. c/be a form of deferred compensation

    6. They are subject to ERISA b/c it’s a benefit

    7. Usually classified as a welfare plan and not a pension plan.

    8. Designing a severance plan:

      1. Who is eligible? Those not able to find employment right away- high level jobs

      2. Length of service requirement

      3. Distinguish btwn union and mgt

      4. Amt: not to exceed annual compensation

      5. Offsets: reductions? Yes if ee applies for unemployment

      6. Can require a lease in order to give severance benefits

      7. ADEA issues: dealing w/ release issues protects ee’s > 40. Page 95 of bk. Advice ee’s to consult with an attorney.

      8. Tax issues: pmts are currently deductible by er. “Golden parachute” limit in what is deductible >1m. B/c change in ee’s create a change in control. § 280G of irc golden parachute 3X base salary is deductible; anything in excess is not deductible. Yes its included in ee’s income; yes its subject to fica/futa (severance pay)

 

  1. Dependant care program: P495

    1. Are subject to ERISA if they set up a day care program on site but not if you fund it.

    2. 2 types of dependant care benefits;

      1. §129 funding (not included in ee’s gross income)

        1. §129 above the line & § 21 is a credit below the line

      2. §21 credits.

        1. Age limits if recipients form children <= 13 yrs old. If over 13 you don’t qualify. Doesn’t cover over night 2400 / 4800 if multiple children

        2. The non-discrimination rules don’t apply to the credit §21; p499.

      3. Max to deduct = 5k by er.

      4. Partners and self-employed persons may participate §129(e)(3) p495

    3. DCP is viewed as economic and human necessity

    4. 2 requirements must be met: p497.

      1. Non-discrimination: Cant discriminate in favor of highly compensated employees; avg benefits for highly comp; 5% shs commonly get up to 25% of benefits. The average benefits provided to ee’s who are not highly compensated ee’s by the plans of the er must be at least 55% of the average benefits provided to the highly compensated ee’s.

        1. Can’t discriminate in favor of highly compensated ee’s or their dependents.

      2. Year-end notice to ee’s of amounts paid or incurred by er. P497.

    5. DC plans are usually funded in cafeteria plans.

 

 

 

 

 

 

 

 

 

 

 

 

  1. Best Case/decision:

    1. Sak v Franklin Covey; 117 F.Supp. 2d 318 (2000).

      1. Ms Saks suffered from infertility and wanted her insurance coverage to pay for the cost of helping her get pregnant.

      2. Briefly about this case: P brought suit against her employers self funded insurance plan claiming violation of:

        1. Americans with Disabilities Act (ADA) 42 USC § 12101

        2. Title VII of the Civil Rights Act of 1964 42 USC §2000e

        3. Pregnancy Discrimination Act (PDA) 42 USC 2000e(k)

        4. New York Executive Law (the New York Human Rights Law) § 296

    2. Court struck down each of P’s arguments:

      1. ADA: Court stated that while the ability to reproduce is a major life activity, the inability to reproduce (aka this is the requirement to be labeled with a disability); however, D does not discriminate in its coverage b/c it offers the same coverage to all ee’s (it does not offer infertile people less pregnancy and fertility related coverage than it offers to fertile people; therefore as a matter of law it doesn’t violate ADA. Also D is not covered by the ADA b/c it falls in a safe harbor provision of IRC § 501 ©(3).

      2. Title VII: This claim was denied b/c ct said that both men and women rec’d the same benefits and are subject to the same exclusions (e.g. men could not rec’ this coverage for their spouse.

      3. PDA: Nothing in the statute requires er to provide insurance coverage for every type of infertility. PDA merely “compels” er’s to provide the same coverage to all persons. The er provides full coverage during pregnancy but not the potentially pregnant.

      4. NYEL:

 

  1. Worst case/decision: Providence Hospital, a Michigan corporation, Plaintiff, v. Russell A. Morrell, Defendant-Third-Party Plaintiff-Appellee, v. United Fidelity Insurance Company, a foreign corporation, Third-Party Defendant-Appellant (160 Mich. App. 697)

    1. The insured’s were covered by a policy issued by the insurer and during the pendency of the policy one of the insured's became pregnant. The insurer cancelled the policy with appropriate notice and the insured’s thereafter incurred expenses at the hospital as a result of giving birth. The insured refused to pay the bill and the hospital filed an action against the insured’s. The insured’s filed a third party action against the insurer and the trial court granted judgment in favor of the insured’s. The appellate court affirmed the decision and the insurer challenged the decision. On appeal, the court affirmed and held that public policy prevented the insurer from canceling the coverage because the pregnancy rendered the insured otherwise uninsurable for that condition. Even though the insurer had the right to terminate the policy and did so without ulterior motive, because it left one of the insured’s in a position of being uninsurable due to a condition that arose while the policy was enforce termination of coverage was not allowed

    2. Insurer was liable for pregnancy cst even though er stopped paying premiums.

 

 

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