GROUP MEDICAL EXPENSE BENEFITS: PLAN PROVISIONS AND TAXATION

1. GROUP MEDICAL EXPENSE BENEFITS: PLAN PROVISIONS AND TAXATION CHAPTER 12

2. Eligibility • Similar to group term life insurance

3. 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.

4. 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

5. 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.

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

7. Coordination of Benefits • Purpose: To eliminate reimbursement in excess of expenses

8. 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

9. 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.

10. 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.

11. 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.

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

13. 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.

14. 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.

15. 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.

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

17. 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

18. 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

19. When termination occurs for dependents • definition of dependent no longer met • ee loses eligibility except for reaching maximum benefits • maximum benefits received by dependent

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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.

27. Conversion • without evidence of insurability • employed for >= 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.

28. 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.

29. 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

30. 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.

31. Questions?