different insurance coverages among classes of employees

[louros]

What is the name of your state? PA. Can a small employer limit paid family health coverage to managers while providing only paid single coverage to the secretaries (with the option to buy spouse, dependent coverage)? Can this be viewed as a legitimate exempt vs. non-exempt benefit differential? Under the insurance contract, the employer defines who is an eligible employee. Is there a possible IRS tax deductibility issue for the insurance expense to the employer as the more highly compensated managers would be getting a more comprehensive benefit?

 

[Beth3]

Can a small employer limit paid family health coverage to managers while providing only paid single coverage to the secretaries (with the option to buy spouse, dependent coverage)? Yes.

Can this be viewed as a legitimate exempt vs. non-exempt benefit differential? Yes.

Under the insurance contract, the employer defines who is an eligible employee. You mean that in the contract/plan document where it defines who is eligible for coverage it says "It's up to the employer"? That strikes me as extremely odd and ill-advised. Are you SURE of that? I can't imagine an insurance carrier entering into a contract with an employer under those terms. For one thing, it leaves the carrier exposed for some major adverse selection impact.

Is there a possible IRS tax deductibility issue for the insurance expense to the employer as the more highly compensated managers would be getting a more comprehensive benefit? Huh? Offering family coverage just to management employees does not provide any greater tax benefit to the employer than offering it to all employees would.

 

[louros]

Thanks for your response, which turns out to be correct.
I did some further research and found out that my concern on the IRS deductibility issue was with IRS Code Section 89 which prohibited discrimnation in favor of highly compensated personnel with regard to health insurance benefits. Section 89 was repealed a number of years ago, so with its repeal, there was no longer any issue as to distinctions in benefits for different classes.

As to the plan definition of an eligible employee, the plan states that an employee is defined as "any person specified by the Group [the Employer] as eligible to apply for coverage and who signs the Application card..." The plan further states that "determination of eligibility by the Employer shall be final and binding for all purposes of this Contract." I might add that this is a Blue Cross, etc. insurance program available to many small employers through a professional association. Perhaps that is why the definition is so employer friendly.