• Can employers vary benefits across workers?

    I’m cleaning out the various cubbyholes where I stash ideas for blog posts. Here’s a bit of post fodder that had been sitting in my Gmail starred items since sometime late last year. I’m just dumping it on the web in rough form, not turning it into a full-blown post. If these notes are helpful to you, great. If you can add more, please do so in the comments.

    I had asked Kevin Outterson and Paul Fronstin about the laws that prohibit employers from offering high- and low-compensation employees different health care benefits. Both told me that self-insured plans are prohibited by ERISA from offering better health benefits to highly compensated employees than those offered to other employees.  Additionally, the ACA limits the ability of employers to vary premiums across employee groups and includes a “non-discrimination rule” for fully-insured plans.

    Paul Fronstin told me that there are often insurer-imposed minimum participation requirements in the small-group market which is an incentive for coverage to be provided to all employees.

    Likely there are other state rules about these things, but I don’t know what they are or how widespread they are. Can some employers of some type(s) in some locations actually pick and choose who is offered health benefits and at what premium? Is that possible in America? If so where and how?



    • Maybe not quite what you were looking for, but my husband had American insurance with the company in Russia he worked for. It was bought out by a Russian company (listed on the NASDQ and subject to some US laws) which continued the insurance. When they laid him off, we weren’t eligible for COBRA due to some loophole about the ratio of insured employees to COBRA insureds. Since most of the other Americans had been laid off or quit, we might have been the only ones with US insurance, as the Russian employees weren’t offered it.

      They did say although we couldn’t get the COBRA price, we could have insurance at 3,500/month, which is 70% of the median household income.

      We found private insurance for 7K$ year, available only because we live abroad. If we were willing to have worldwide coverage excluding the US, the price would have been half as much, or basically the same as one month of the full US insurance we were offered.

      Thanks to on-line quotes, you can see the numbers for yourself. Try an Aetna individual plan for an American resident, a plan for global citizens with and without the US exclusion and you will discover that you can be covered for the best hospitals anywhere in the world except the US for a quarter of the cost of being covered to go to East Podunk, America’s community hospital.

      • Dear SAO,
        The numbers you provide are very high. I am an independent broker, working with companies and individuals. There are some other insurers, offering similar or broader benefits for lower premiums and less restrictions. Of course, it depends on state. I am talking about California.

    • Hmm… My Massachusetts-based employer provides VPs an extra health plan that covers all cost sharing or uncovered items from our regular health plan (which is not self-insured) for anything that qualifies as medical under the internal revenue code. Presumably they’ve found a way around imputed income.

    • Employers can provide employee-paid individually-owned defined contribution health plans, in which benefits vary in direct proportion tp premius paid.
      If you pay twice x, you get double the benefits of x.
      Don Levit

    • Well, FEHBP would be a sort of example, in that the plan benefits vary by where in the country you are. Of course, everyone gets offered benefits, and your premium varies by what plan you choose.

      My employer (a for profit!) actually requires higher earners to pay higher premiums. Kudos to them.

    • From an analysis of the then-proposed Cadillac tax in 2009: “The executive medical and dental program at Goldman Sachs, one of the nation’s largest banks, has become the poster child for lavish health insurance plans. Goldman’s top executives participate in a medical and dental plan that costs $40,543 a year for each participant’s family — three times the national average, according to the New York Times. Paul Fronstin, director of the health research and education program at the Employee Benefit Research Institute, suggests that such extremely expensive plans are likely to have no co-payments or deductibles, no limits of virtually any sort on doctors or procedures, and no requirements for referrals.” The original source for the information on the Goldman plan is Leslie Wayne and David M. Herszenhorn, “A Bid to Tax Health Plans of Executives,” New York Times, July 27, 2009. This supports the previous comment from GrandArch. I will have to refresh my memory on how these executive plans get around the nondiscrimination rules.

    • My employer charges everyone in the plan the same premiums (not clear if it is self-funded or Real Insurance) — but — if you opt out, you not only get to keep what you would have paid as a premium, but you also get a payraise.

      I have been unable to get anyone to understand that this is counter productive

    • Dear Mr. Frakt,

      Your comments regarding non-discrimination are very important. Very often employers, are aware about these restrictions and as result are not willing to provide group health benefits.
      As an independent broker, i have been practicing another approach: The owner may be attracted to the opportunities to contribute different amount of money (or % of premium) for different groups of employees. The contribution is tax-deductible (as business expenses). If business owner (management) is much older than employees of the company, business owner may have premium 3 x more than average employee. Company should contribute the same amount of money per each member of group. But, for a certain group of employees, the owner may contribute a different amount of money, including even dependents. Example: EE premium – $250, premium for owner – $1,000 (plus, family). The owner may contribute $ 200 per EE and $900 for management (plus family). They will offer the same plan(s) per all employees, but the owner will benefits from the allowed different amount of contribution. These plans (self – funded, and traditionally insured) must be carefully organized with the consideration or owner’s interest. Very often these additional tax benefits may be important for business owners to provide health group benefits.