Health Insurance Coverage
Section 125 Cafeteria Plans
What is a Section 125 Premium Only Plan (POP)?
According to Section 125 of the IRS tax code, a cafeteria plan is a written document which allows employees to convert certain taxable benefits into non-taxable benefits.
Premium only plans allow the employer to payroll deduct the employee's portion of group health insurance premiums to be paid with pre-tax dollars. Under this plan, employees may choose to pay for qualified benefit premiums before any taxes are deducted from employee paychecks.
Where can I shop for a Section 125 POP?
Ask your insurance agent or carrier for assistance in choosing a plan that meets your needs at a cost you can afford. Some carriers offer free or low cost Cafeteria POP-125 if you purchase products through them. In addition to insurance carriers, there are several companies that offer POP plans along with their other Cafeteria 125 plans for a reasonable fee Ask other business professionals for recommendations or do research online for more options.
What if I (employer) do not set up a Section 125 POP?
You will not be in compliance with § 376.453, RSMo. The agent selling the group health plan may provide the employer with a form informing the employer of this obligation, but it is the employer’s responsibility to establish the POP.**
If I pay 100% of the premiums for my employees and their dependents, do I have to set up a Section 125 POP?
No. Section 125 plans are designed as a tool that employees use to pay health insurance premiums on a pre-tax basis. If employees and/or dependents are not paying any premiums, it would not be feasible to set up 125 plans.**
If I pay 100% of the premiums for my employees, but not 100% of premiums for their dependents, do I have to set up a Section 125 POP?
If I only have one employee, do I have to establish a Section 125 POP?
Yes. § 376.453, RSMo is applicable to employer groups of all sizes.**
**After discussions with representatives of several federal agencies, the Department of Insurance, Financial Institutions and Professional Registration has concluded that implementation of certain portions of HB 818 (2007) may conflict with some federal laws and regulations. Areas of potential conflict with current federal interpretation that have been identified at this time include:
- § 379.940.2(3)(c), RSMo - Gives small employer employees the option to retain their individual coverage and expect equitable premium contribution by their employer. Possible conflicts with ERISA, IRS and HIPAA discrimination laws. ERISA and HIPAA guarantee issue requirements may also be impacted.
- §§ 354.536.2, 376.426(17) and 376.776.3, RSMo – Extends the dependent age obligation. Extension of dependent age is NOT problematic and is being enforced. See Bulletin 07-06. Possible conflicts with IRS laws and ERISA depending on how coverage of emancipated dependents is paid and by whom.
- § 376.453, RSMo - Obligates employers to set up a 125 cafeteria POP plan. Potential discrimination concerns with IRS laws, ERISA, and HIPAA depending on what is considered employer dollars when it runs through a 125 cafeteria POP plan (Federal law, 26 U.S.C. §125) and what type of insurance plan is being paid for by employer dollars (individual or group).
Since a number of the requirements in HB 818 (2007) are placed on employers rather than the insurers, DIFP believes it would be problematic for employers to place themselves in a position, which may conflict with current interpretation of federal law in an effort to comply with Missouri state law. It may be prudent for employers to consult an attorney before taking steps to comply with their obligations under HB 818. It is anticipated that after January 1, 2008, Missouri courts will be the enforcing agency for the obligations found in HB 818 as a result of a lawsuit being filed, until the conflict with federal law is resolved.
Did the definition of a “small employer” change?
Yes. A small employer is defined as one that has 2 – 50 eligible employees (see § 379.930 (34) RSMo). See Bulletin 07-07.
Did the index rate for class of businesses change? What does that mean?
Yes. An index rate may not vary by more than 35% (it was 25%) for a class of business under a rating system (see § 379.936.1(2) RSMo). This means that there is a greater range for rate decreases/increases within the small employer market than before.
Will there be a 3-year “transition period” for the index rating of small employer groups, from 25% or 35%, which have 2 or 26-50 employees?
No. The effective date of §379.936 RSMo is January 1, 2008, but the applicability of the index rating change for any one particular small employer group health plan will be at the renewal for that specific group health plan. All health plans should be in compliance by December 31, 2008.
Can I (employer) pay a percentage of the insurance premium for each employee instead of a specific dollar amount?
Yes. Your “defined contribution” can be paid for the employee’s health benefit plan as the same dollar amount or the same percentage of their premium or a combination of both.
Did the “participation” level for plans change?
Yes. In the past insurance companies set their own levels for how many employees need to participate in a plan in order for coverage to be issued or renewed. The new minimum participation levels are 100% of eligible employees for groups 3 or less and 75% of eligible employees for groups 4 – 50. These participation levels cannot count employees who retain individual coverage as allowed under § 379.940.2(3)(c) RSMo, except insurers will not be required to issue contracts to groups of less than 2.
Do all insurance plans have to cover dependents up until the age of 25?
Almost all individual and group insurance health coverage, including small employer plans. Exceptions apply to pre-paid dental plans (§ 354.702.3, RSMo) and self-insured ERISA plans.
When does dependent coverage stop?
Coverage for dependents will stop on a dependent’s 25th birthday (unless the insurance plan extends coverage beyond that date – check with your plan)
When does an insurer have to start offering the dependent coverage extension?
Upon the first renewal on or after January 1, 2008. For example, if your plan has a renewal date of June 1, you will need to wait until that time.
Do I have to do anything to get the extended dependent coverage?
Yes. You need to contact your insurance company. The law allows you to keep a dependent on your policy until age 25, but the policy may talk about limiting coverage until age 19. If your policy does not automatically apply to 19 – 25-year-olds, you need to contact the insurance company within 31 days after the dependent child’s attainment of the limiting age under the contract and request coverage become extended. If your child has already aged off your policy, but meets the new standard for dependent coverage, you should ask about adding your dependent back onto your plan at the next open enrollment for which coverage will become applicable on or after January 1, 2008.
What if I am required to cover my child because of divorce and the child doesn’t live in the state of Missouri?
A dependent child entitled to continued coverage under §§ 376.426, 376.776 or 354.536 RSMo shall be considered residents of the state if such dependent child is required to be covered by court order in a divorce decree while the dependent is residing outside of the state of Missouri.
When do I have to let my carrier know that my child has a physical or mental handicap, so I can continue his/her coverage under my health plan?
Within 31 days after the dependent has attained his/her limiting age birthday.
If my child does not live in my home or is not in college, is there a tax issue?
See Bulletin 07-06. It is recommended that employers consult a tax attorney regarding how to handle the imputed wages for any contribution they provide for dependents who are emancipated and no longer a dependent for tax purposes of the eligible employee/enrollee. Employee contributions for an emancipated dependent made with pre-tax dollars may also have tax implications for the employee.
Health Insurance Portability and Accountability Act
What are the two definitions of pre-existing conditions?
Section §376.450(23) RSMo. defines “pre-existing condition” as :
"Preexisting condition exclusion," with respect to coverage, a limitation or exclusion of benefits relating to a condition based on the fact that the condition was present before the date of enrollment for such coverage, whether or not any medical advice diagnosis, care, or treatment was recommended or received before such a date. Genetic information shall not be treated as a preexisting condition in the absence of a diagnosis of the condition related to such information;
Section §376.426(5) RSMo. defines preexisting conditions as:
"A provision specifying the additional exclusions or limitations, if any, applicable under the policy with the respect to a disease or physical condition of a person, not otherwise excluded from the person's coverage by name or specific description effective on the date of the person's last loss, which existed prior to the effective date of the person's coverage under the policy. Any such exclusion or limitation may only apply to a disease or physical condition for which medical advice or treatment was received but the person during the twelve months prior to the effective date of the person's coverage. In no event shall such exclusion or limitation apply to loss incurred or disability commencing after the earlier of:
(a) The end of a continuous period of twelve months commencing on or after the effective date of the person's coverage during all of which the person has received no medical advice or treatment in connection with such disease or physical condition; or
(b) The end of the two-year prior commencing on the effective date of the person's coverage;
Section §376.426(5), RSMo. will be applicable to those contracts that are defined as "excepted benefits" in §376.450(9) RSMo. Section §376.450(23), RSMo. will be applied to contracts that need to comply with HIPPA.
Which one of the two definitions of pre-existing conditions applies to me?
If you have a Major Medical, PPO or HMO then § 376.450(23), RSMo applies to you. This definition will apply to most health insurance contracts.
If you have a plan that has limited benefits, specified disease or a “supplement,” then the definition in § 376.426(5), RSMo. will apply.