Small group health - eligible employees

[EdBrown]

A small non-profit wishes to cover only one of its ten employees. To qualify, they must have at least two ELIGIBLE employees. They intend to show the carrier that they have ten full-time employees and tell the carrier only one has opted for coverage. However, they do not intend to offer insurance, or even inform the other employees.

The broker says this is a loophole. Is this technicality legit? If not, what potential liability might the non-profit face from the carrier and/or the other employees?

Thanks very much.

[ecmst12]

Not legal. They must define the eligible classes of employees and then must offer the insurance to ALL employees who meet the eligibility criteria.

If they just want to cover one employee, the best option is to purchase an individual plan for the one employee, or reimburse him/her for the cost of one. Though I don't believe you will get the same tax benefits for this.

[steelworker34]

What are the rules concerning eligibity criteria then?

Surely if a company wanted to make employees X and Y eligible; they would only have to create a new "department" in name only; "assign" these employees to the department; and then make them eligible.

Or assign them a "title" and use that.

If a company seems set on making a certain employee eligible; I dont see what restrictions they have on creating bogus "classificiations"

[ecmst12]

The classes of eligible employees must be by some objective criteria, NOT specific employees' names. It would be difficult to come up with a criteria that would put employees that do the same job into different classes. CBG probably knows more on what the legal guidelines/restrictions on creating classes are.

[cbg]

The classifications can be pretty much anything the employer wants them to be, as long as they are based on some kind of objective criteria.

Common classifications: full time vs. part time; office vs. shop; corporate office vs. field offices; management and up vs. supervisor and below; employees vs employee's dependents.

Other possible, legal classifications; Departments A, B and C vs. Departments X, Y and Z; Employees hired prior to x date vs. employees hired after x date.

What Ed's company is proposing to do would violate ERISA law, since ALL employees who meet the eligible requirements MUST be offered the insurance.

If the company is determined that only one employee is to be offered insurance, the legal way to do it would be to purchase an individual policy for that individual only. They CANNOT legally purchase group insurance with minimum requirement of two employees and then only offer it to one employee.

[tranquility]

There would be a tax issue regarding the deductability of the medical payments or if it is taxable to the employee as compensation depending on the actual reasons why and also, there could be risk to the status of the corporation (non-profit) if certain benefits flow to individuals alone.