Friday, March 06, 2015

Everything Old...

About a year ago, we wrote about a Tar Heel State municipality considering dumping its group coverage altogether. While we've long predicted that employers in general might find this attractive, the folks who run Montgomery County (NC) proposed an alternative based on an old life insurance standby, the "Executive Bonus" (EB) arrangement.

Briefly, an EB arrangement is used when an employer offers to buy life insurance for a valued employee, who could then name his beneficiary (usually his spouse). To keep the arrangement simple, the employer simply "bonused" the premium to the employee. Since the bonus was taxable, employers often included the estimated amount of the taxes in the bonus.

Fast forward a year, and "Christopher Condeluci ... says employers can offer a non-conditional cash bonus that employees use to purchase health care coverage."

[ed: Mr C is apparently a benefits attorney]

Sound familiar?

His idea is that employers could simply identify how much they want to pay towards their employee's health insurance (perhaps based on the soon-to-be-deleted group plan?) and then simply bonus the employees that amount. Because the ObamaTax outlaws using tax-advantaged Health Reimbursement Arrangements (HRAs) to accomplish this, the employee must receive the cash with no strings attached. So he can use those funds for his insurance, or a new car, or a cruise.

Where it gets interesting, though, is the means by which Mr C proposes to ensure that the proceeds do, in fact, go for insurance: "use a payroll vendor to allocate the money to be paid to a carrier for monthly premiums." That is, arrange it so that, even though the money technically goes to the employee, it's actually routed to the payroll vendor and then on to the individual's health insurer of choice.

I had some questions about the legality (not to mention efficacy) of this arrangement, and reached out to Louise Norris, proprietress of the Colorado Health Insurance Insider blog and a valued colleague. I wondered whether she also had reservations about this, since it's certainly pushing the envelope.

Here's her take:

"Personally, if I were an employer, I'd stay away from stuff like that, because I wouldn't want to have even a hint of anything that might be seen as skirting the law."

Succinct, and exactly on point. I also wonder how much the payroll vendor will charge to set up multiple accounts with various carriers to process these transactions. And I further question how insurers will react to payments for individual plans from payroll companies.

I just don't see value here.
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