C2M5: Employee Group Benefits
The maximum benefits under cafeteria or FSA plans are as follows: · Dependent care—______________ annually (2023) · Unreimbursed medical expenses—___________ in 2022 employer-sponsored health, disability, or group term insurance premium
$5,000 $2,850
Group term life insurance coverage generally ranges from __________________ to _________________.
$5,000 to $100,000
Health Savings Accounts (HSAs) For persons age 55 or older, the contribution may be increased by $_________.
1,000
Health Savings Accounts (HSAs) The minimum deductible for self-only coverage is $___________ and for family coverage is $____________
1,400 2,800
Cafeteria plans are most feasible for employers with more than ____employees; however, employers with as few as ___ employees have used them.
20 5
Health Savings Accounts (HSAs) In 2022, contributions are limited to up to $_____________ for individuals. For families, contributions are limited to up to $___________. These limits are based on a full year and must be adjusted for partial years (see IRS Form 8889).
3,650 7,300
When it comes to group term life insurance, what is considered a group?
A group is all the employees of an employer—or fewer if individual selection does not define the group.
What is AD&D short for?
Accidental Death and Dismemberment
If an employer provides group term life insurance benefits to key employees, what is the rule?
All benefits available to key employees must be available to all participants, using a uniform formula.
What types of group life insurance policies are there?
Contributory Non-Contributory
Group Life insurance Discuss taxes for death benefits
Death benefits paid to beneficiaries of group (or individual) term or permanent life insurance policies are not subject to income tax.
Relative to common Group term life coverage formulas, discuss "A coverage limit for different classes of employees"
Employees receive $20,000, supervisors $50,000, and corporate officers $100,000 of coverage.
With an FSA, what are your options if you have funds left in your account at the end of the year?
Employers may also allow participants in a health FSA to carry over up to $570 of their unused FSA remaining at the end of the plan year. This option would be in lieu of the 21⁄2-month grace period. A plan could not offer both options.
Is a health insurance policy's coverage or HMO coverage generally broader?
HMO
With respect to group term life insurance, what code defines "key employee"
IRC 416(i)
Scenario: an employer offers a cafeteria plan. Rather than selecting other benefits, the employee selects the cash benefit. Discuss how this will be taxed.
If a cash benefit is elected, meaning the employee elects to receive cash rather than use the amount toward a benefit, then the cash amount is included in the employee's taxable income.
With respect to Accidental Death and Dismemberment coverage, what is "Business travel Insurance"
It is one of the two type of AD&D coverage available, and generally covers specified classes of employees only while they are traveling for business purposes
EXAMPLE: HSA examples David and Mary have family HDHP coverage with a $5,000 deductible. David has no other coverage. However, Mary also has self-only coverage with a $200 deductible. What can each contribute to an HSA?
Mary, who has coverage under a low-deductible plan, is not eligible and cannot contribute to an HSA. David may contribute $3,650 to an HSA.
For establishing group benefit eligibility, must employers include union workers as a class?
No, since their compensation and benefits are covered by a collective bargaining agreement.
Do agent commissions usually apply to GULPs?
Not usually, because agents usually don't sell it.
Supplemental Group Term Life Will the insurer require evidence of insurability? Why or why not?
Often, yes they will because there is greater risk of adverse selection in a voluntary policy.
What is a contributory group life insurance plan?
One where the employee pays some portion of premiums
Relative to common Group term life coverage formulas, discuss "An amount of coverage based on years of service"
Participants receive $5,000 of coverage for each year of employment (i.e., a 2-year employee receives $10,000 and a 10-year employee receives $50,000).
Relative to common Group term life coverage formulas, discuss "A percentage or multiple of earnings"
Participating employees receive coverage equal to their earnings, half of their earnings, or some other multiplier.
PPACA is short for
Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act
If the employee is responsible for making group LTC premium payments, what is one trick they can use to pay premiums and avoid paying taxes on it?
Pay it from an HSA using pre-tax dollars.
Are are group survivor income insurance payments taxable? Why or why not?
Payments to the surviving spouse and/or children would be taxable because group survivor insurance is not considered to be life insurance
What is Retired lives reserve?
Retired lives reserve is a plan that prefunds the cost of post-retirement group life insurance coverage.
Cafeteria Plan ____________________ requires a cafeteria plan to offer two things. Name them.
Section 125
A cafeteria plan is also known as a
Section 125 plan
Group Carve out _____________________ life insurance is one method of implementing this discriminatory individual coverage
Split-dollar
Tax Consequences of Permanent Insurance How are dividends from permanent insurance taxable to the employee?.
The amount taxable to the employee for the dividends actually or constructively received (and any employer-provided permanent coverage) would be offset by the employee's contributions toward the cost of this coverage. The calculation uses a rather complicated formula, which is beyond the scope of this course.
With respect to group paid up coverage, how is the term coverage portion purchased?
The employer purchases sufficient group term life insurance to provide the scheduled total amount of insurance coverage to the employee.
Discuss the possible downside of the cost of GULP for an employee?
The individual insured may pay more than necessary for such coverage because everyone is assumed to have less favorable health than a normally healthy employee does. This is probably because of the adverse selection issue stemming from limited underwriting.
An employee has a group term life plan with conversion options and another employee has a group term life plan that offers permanent benefits. At retirement, each decides to convert their policy from a group to an individual policy. Conversion comes at a cost - who is likely to get a better cost?
The one converting a plan that has some permanent benefits is more likely to get a better cost than the one just doing permanent life.
If you are asked about group variable life plans, how should you answer?
The same way you would answer for GULP, except using variable universal life products.
If a plan is Section 79 compliant, the employer-paid premiums are fully deductible to the employer; what are the limits?
There is no limit
How do group insurance underwriters evaluate the risk represented by a given group of individuals?
They look at the risk presented by the characteristics of the group and the plan as a whole
What happens to an HSA if funds remain at the end of the year?
Unlike FSAs, HSA funds are allowed to accrue and the accounts are not tied to the employer.
Are HSAs transferrable between employers?
Yes
Group term life insurance coverage typically provides...
a lump-sum payment of the face amount of the insurance to beneficiaries at the insured employee's death
Group term life coverage must be based on a formula that ___________________ to all plan participants.
applies uniformly
With respect to the inclusion of permanent benefits for a group term life insurance plan, if either a group ordinary or group paid-up policy is implemented, the permanent portion of total coverage grows as the employee....
approaches retirement.
When is a group paid up policy meant to be paid up?
at retirement
Self-Funded ("Self-Insured," "Uninsured") Plan: aggregate stop loss At the end of the year, the ____________________ is calculated based upon the number of ___________________________ and __________________ that were covered. If the total claims ____________________ the attachment point, the carrier __________________________.
attachment point single participants family units exceed reimburses the plan
Why is dependents' group term life insurance often limited to $2k?
because that amount wont be taxed
With Retired lives reserve, upon retirement, the employee is taxed on the...
cost of coverage above $50,000 under Table I
Small-Business Health Care Small businesses may be able to take advantage of a health care tax __________. In order to claim it, the business must have no more than _____ full-time-equivalent employees (2 half-time employees equal 1 full-time employee) and pay an average wage of less than $______________ a year. The average wage would be calculated by dividing total wages by the number of full-time-equivalent employees. The business must also cover at least ____% of the cost of single (not family) health care coverage for each employee.
credit 25 50,000 50
Is a cafeteria plan easier or harder to administer when compared to other employer group benefit plan structures?
easier to administer
A PPO is still a ______________________ plan versus the prepaid approach of _________s.
fee-for-service HMO
GULP benefits include (3)
flexible premiums, death benefit options, and potentially high returns due to interest sensitivity.
Can a 401(k) plan be a plan within a Cafeteria plan?
generally yes
Can a 401(m) plan be a plan within a Cafeteria plan?
generally yes
To say a policy includes permanent benefits means
it provides an economic value extending beyond one policy year
Are Medical expense benefits taxable under a cafeteria plan? What about an individual plan?
no no
With respect to group term life insurance, the employer may choose to offer a plan that permits employees to build some ______________________ coverage.
permanent insurance
When a life insurance company offers group medical coverage, the insurer normally requires that what else is included for employees? What is an option the employer could include
some group life insurance Dependent life coverage is normally an option that the employer can include.
Accidental Death and Dismemberment Payments for dismemberment of ______________________ usually are a __________________ of the AD&D coverage amount (e.g., _____% of $____________ for loss of one arm and one leg).
specific limbs percentage 10 10,000
With a comprehensive medical expense plan, generally, the insured employee pays ____________________ of medical expenses up to a specified ___________________ amount (e.g., $100 per individual, $300 family maximum), and the comprehensive plan pays for some portion of the expenses beyond the deductible—usually ______%. This is known as ______________________. To protect the employee from extraordinary medical expenses, a policy usually will set a limit (aka__________) on the __________________________________________________. Beyond this coinsurance limit the policy will pay _________% of the covered costs up to the ____________________.
the full cost annual deductible 80 coinsurance stop loss total annual amount of copayments the employee will pay. 100 overall policy limit
With Retired lives reserve, the account may be either ___________________________ account or a ______________ account providing _____________________________________.
the insurance company's separate trust group term life for retired employees
How many types of AD&D coverage are there?
two
Normally the life insurance coverage provided for a spouse and children is limited to $_____________. Why?
$2000 because that is the tax free amount
EXAMPLE: HSA examples Allan and Andrea have family HDHP coverage with a $5,000 deductible. Allan has no other coverage. Andrea also has family HDHP coverage with a $3,000 deductible. Both Allan and Andrea are eligible individuals. The maximum combined HSA contribution by Allan and Andrea is ____________________
$7,300, to be divided between them by agreement.
Self-Funded ("Self-Insured," "Uninsured") Plan What does a specific stop loss pertain to? What does a specific stop loss limit? . Generally, if an individual reaches the specific stop loss, the carrier...
- The specific stop loss pertains to an individual participant (i.e., employee or dependent) - limits the plan's liability for any individual's health care costs - reimburses the plan for 100% of any health care costs that exceed the attachment point
The NAIC model also provides that if the dependents' group term life insurance coverage ends for any dependent of a covered employee, the dependent may... Such an option would be available for the dependent if the coverage ceased due to any of the following reasons:
- convert to an individual policy without evidence of insurability - termination of employment of the employee, death of the employee, or - the dependent's ceasing to be a qualified family member for any of the following reasons: divorce, age of a dependent child, or marriage of a dependent child
Discuss laws/models around dependents' group term life coverage
- specific laws differ between states - members of the NAIC adopted legislation following the Group Life Insurance Definition and Group Life Insurance Standard Provisions Model Act. - The NAIC model limits the amount of life insurance coverage for a dependent spouse or dependent child - The NAIC model also provides that if the coverage ends for any dependent of a covered employee, the dependent has the option to convert to an individual policy without evidence of insurability.
What are considerations an employer has when providing group benefits (aside from cost)?
- the ability of employees to contribute to some portion of the insurance premium and - the employees' level of need for insurance protection. - the degree to which the employer feels responsible for providing employee security. - state law.
Characteristics that distinguish group survivor income insurance from other types of group insurance include (3):
- the absence of a lump-sum payment option, - the employee's lack of choice in beneficiaries (spouse and children only), and - the requirement that benefits will be paid only if there is an eligible survivor
A group term life insurance policy typically includes ancillary benefits, such as the Are these ancillary benefits are considered permanent benefits?
- the right to convert to permanent coverage after the group coverage terminates, - an additional feature (or features) that provides no economic benefit other than current insurance protection, and - term life coverage with level premiums for up to five years. no
Two restrictions must be noted on the use of group paid-up policies.
1) COST: group paid-up policies are more costly to administer than group term policies. 2) STABILITY: group paid-up coverage will be available only to employers exhibiting employment stability. Low turnover and low expectation of labor disruptions generally are required by an insurance company.
In addition to the requirements applying generally to group term life insurance, the following two conditions must be met before any part of a group policy with permanent benefits will qualify for special tax treatment for the employer:
1. The amount of the death benefit considered part of the group term plan must be specified in writing by the employer or stated in the policy. 2. The amount of the death benefit designated as group term must comply with a formula in the regulations.
Technically, to qualify as group term life under Section 79 and receive the favorable tax treatment allowed for such coverage, the life insurance provided must meet the following four requirements:
1. The coverage must provide a general benefit. Accidental death and dismemberment insurance, travel insurance, and health and accident insurance are not considered to provide a general benefit since such policies pay a benefit in only certain circumstances. 2. The coverage must be provided to a group of employees as part of their compensation for services rendered as an employee. A group is all the employees of an employer—or fewer if individual selection does not define the group. A self-employed individual, partner, or 2% owner of an S corporation is not an employee for this purpose. Life insurance does not qualify as group term life insurance if provided to fewer than 10 employees, except under specific circumstances discussed elsewhere. 3. The insurance policy must be provided by the employer as either a master policy or a group of individual policies. 4. The amount of insurance provided to each employee must be consistent with no individual selection.
Small-Business Health Care If a small business is hoping to satisfy requirements to qualify for a health care tax credit, one qualification states that the business must have no more than 25 full time employees. How are part time counted and List those who are not counted as employees.
2 part time = 1 full time Self-employed individuals, no including partners and sole proprietors, 2% shareholders of an S corporation, and 5% owners of the employer are not treated as employees for purposes of this credit. To be treated as an employee, the individual must be performing services in the trade or business of the employer.
The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) is a federal law that requires employers with ______ or more employees to allow former employees and their dependents to continue... Coverage may be continued for ____-____ months. Employees or dependents must pay ________________ for the coverage. COBRA specifies rates, coverage, qualifying events, qualifying beneficiaries, notification procedures, and time of payment requirements for the continued insurance.
20 the benefits provided by the employer's group health insurance plan 18-36 the entire premium
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted in
2020
When was the CARES Act enacted?
2020
Is the cash benefit option of a Cafeteria plan: 1) tax free for the employee because benefits were not used 2) taxed as capital gains 3) taxed as compensation
3) taxed as compensation
Small-Business Health Care The small business health care tax credit of up to ____% of the cost is available against the employer's _______________ tax and its ________ liability
35 regular AMT
The NAIC model limits the amount of life insurance coverage for a dependent spouse or dependent child—the coverage on any dependent cannot exceed ____% of the insurance for the employee
50
An employer can provide up to $_______________ of group term life insurance coverage on the life of an employee without tax consequences to the employee if the group term coverage meets the requirements of ______________________. The cost of employer-provided coverage in excess of the $50,000 face amount is __________________ to the employee, based upon what is referred to as ___________________________________. Any amounts paid by the employee toward the insurance cost will ___________ the employee's taxable cost of coverage above $50,000.
50,000 IRC Section 79 taxable Table I cost per $1,000 of coverage each month offset
Regarding dependents' group term life coverage, for children: a typical amount of coverage may range from $______ for ages _________ to ________ , then increase to either $_________ or $__________.
500 14 days to six months $1,000 or $2,000
Health Savings Accounts (HSAs) In 2022, the maximum annual out-of-pocket expense for a high-deductible health plan for self-coverage is limited to $___________, and the maximum annual out-of-pocket expense for a high-deductible health plan for family coverage is limited to twice $_________, or $__________.
7,050 7,050 14,100
A basic healthcare plan covers? A major medical plan covers?
A basic healthcare plan covers hospital and surgical A major medical plan covers diagnostic and medical services
What is the primary use of a carve out plan?
A carve-out plan can be the answer to correcting a discriminatory group term plan; removing the executives probably will bring the group term plan into compliance with Section 79 requirements based on the remaining participants.
Is it common for an employer to offer dependents' group term life insurance? Why or why not?
Although the cost is minimal, dependent life coverage is frequently not included. because the amount of coverage provided is too low to be significant.
With respect to group paid up coverage, what happens when the employee reaches retirement/termination?
At termination, the employee has the option of cashing out the policy or leaving the paid-up portion in force at no further cost. Generally, the employee has the right to convert any remaining term coverage, if desired.
Why are GULP premiums usually employee paid?
Because a GULP program is implemented through individual contracts with each participant.
Are group ordinary plans common? Why?
Because of earlier abuses, these plans are not common because they are subject to complex rules that require the employer to pay only the term cost; the permanent portion needs to be entirely supported by the employee.
Are there special tax consequences associated with a cafeteria plan? Why or why not?
Because these qualified benefits generally are tax free, no special current tax consequences accompany cafeteria plan participation.
When do group survivor income insurance payments end for surviving children?
Benefits to children usually continue until age 18 or 24 if in school.
A Section 125 plan is also known as a
Cafeteria Plan
what types of instruments can HSA funds be invested in?
Contributions can be invested into a wide variety of vehicles including stocks, bonds, index funds, ETFs, and mutual funds. The interest earned on these investments accumulates tax free if subsequent withdrawals are used for qualified medical expenses.
Health Savings Accounts (HSAs) Can contributions be made for previous years?
Contributions may be made up to April 15 and are to be reported on Form 8889
If you're an employer that is required to provide group benefits, what is the requirement around providing coverage for an employees dependents?
Coverage must also be made available to a participating employee's spouse or children up to age 26.
Is the cost of employer-provided insurance coverage of OVER $2,000 on dependents taxable to the employee?
Dependent coverage in excess of $2,000 is fully taxable to the employee
Employers can offer group life insurance coverage for the employee's spouse and any children up to age 26. This is known as...
Dependents' Group Life
Self-Funded ("Self-Insured," "Uninsured") Plan Employers who wish to self fund may need assistance with certain aspects of the establishing and managing of a self funded plan. What are some areas where they might seek assistance and to whom might they turn?
Design benefits - may work with a third party who provides third party administration (TPA) or an insurance company for ASO (an administrative services only contract) for the potential savings and control over the cash flow. The sponsor may pay a monthly fee to the TPA/ insurance carrier for administration but have control over the fund being established to pay claims until claims are actually paid.
With respect to group term life insurance policies that have a permanent benefit, what is the purpose of Group Paid Up?
Designed to address the need for employees to have more than temporary term coverage, group paid-up coverage consists of increasing units of whole life and decreasing units of group term. The policy is structured to be fully paid up at retirement.
____________________ paid on group permanent policies may be taxable to the employee if...
Dividends a policy includes both group term life insurance coverage and permanent benefits
For cafeteria plans, by when do plan contributions need to be used?
During the contribution year or other specified time period
Are GULP premiums usually paid by employer or employee and why?
Employee, because the program is implemented through individual contracts with each participant
With a group ordinary (Section 79) plan, are employees required to participate? offers employees the opportunity to participate in ordinary whole life insurance funded by employee and employer contributions. Whether employees choose to participate in or waive the contributory permanent coverage, they will benefit from the employer-paid term life insurance portion of the coverage.
Employees are not required to participate in the whole life portion and can still receive the term portion that the employer covers should they choose to waive participation the whole life portion
A cafeteria plan that is funded entirely through employee salary reductions (with no employer contribution) is known as a(n) __________.
FSA
What happens if you don't use all of your FSA funds in the specified time period (usually calendar year)?
FSAs have a use it or lose it policy. - An FSA can allow a grace period of up to 21⁄2 months. For a calendar year FSA, employees have up to March 15 of the following year to use FSA funds from the previous year. - A health care FSA can allow employees to carry over up to $550 of unused balances from one year to the next. Note that a health care FSA can offer either the carryover privilege or the grace-period allowance, but not both.
Group variable life plans are very similar to ______________ using ____________________ products.
GULP plans variable universal life
With an FSA, how much time do you have to use the funds you have put into the account?
Generally, health FSAs must apply the use-or-lose rule, but in 2005, the IRS modified the rule to allow plans to provide participants an additional 21⁄2 months to use the money.
With respect to group paid up coverage, how is the whole life portion purchased?
Generally, the employee makes an after-tax contribution that is allocated to purchase whole life insurance.
Can an employer deduct contributions to a retired lives reserve account?
Generally, yes
The purpose of ensuring an employer's __________________ plan is Section 79 qualified is so that the employer receives ___________________________________ for the plan, which comes in two forms - name them.
Group Term life insurance favorable tax treatment 1) the employee's $50k exclusion and 2) the employers premium deduction
What is GULP short for?
Group Universal Life Insurance Policy
What is one downside of group LTC?
Group insurance plans are not tailored to meet individual needs because the employer chooses the plan coverage for all the participants.
EXAMPLE: Flexible spending account Caroline is in the 12% marginal tax bracket and has estimated her costs for prescription drugs and eyeglasses for the next year to be $2,000. She is considering opening an FSA account through her company to pay for these expenses. She can have her employer deduct $175 a month from her monthly paycheck and deposit it into the FSA.
How much would she save? If she doesn't open the FSA account, she would need to earn $2,429 to pay the $2,000 in estimated costs, a difference of $429! The difference is even more substantial with higher tax brackets. The calculation is $2,000 / (1 - .12 - .0565) = $2,000 / .8235 = $2,429.
What is Supplemental Insurance Coverage and why is it used
In addition to offering a basic group life policy for all employees, the employer may provide one or more supplemental policies for certain classes of employees. I assume to lure in the fancies.
How does an FSA work?
In an FSA, the employee commits to allocating a dollar amount of salary reduction for the coming year to a specific benefit or a specified period ("use it or lose it"). The employee's salary will be reduced by the specified dollar amount, determined before the beginning of the year, and the employee will forfeit any unused amount at year-end (use it or lose it). In light of the potential for employees to actually lose portions of their income, thorough employee education and ongoing support are vital to the successful implementation of an FSA plan.
For a group term life insurance plan to qualify for favorable tax treatment, ______________________________________ requires that a group term policy furnished by the employer must not discriminate in favor of key employees.
Internal Revenue Code Section 79
What is the major disadvantage of group life insurance?
It ends when the employee leaves
What did the CARES Act do?
It expanded reimbursable qualified medical expenses for 2020 and later years to include the cost of over-the-counter (OTC) drugs without a doctor's prescription. The act also permitted the use of FSA funds to reimburse the costs of menstrual care products. Both these CARES provisions are permanent
What did the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in do?
It expanded reimbursable qualified medical expenses for 2020 and later years to include the cost of over-the-counter (OTC) drugs without a doctor's prescription. The act also permitted the use of FSA funds to reimburse the costs of menstrual care products. Both these CARES provisions are permanent
what is split dollar life insurance?
It is a strategy generally used as an employer benefit or for estate planning involving life insurance. It's an agreement between two or more parties to share the ownership, costs, and benefits of a permanent life insurance policy, like whole life.
Is establishing a group life insurance plan difficult for the employer?
It is easy
What are the advantages of group life insurance?
It is easy to sign up for It is less costly than an individual policy
With respect to Accidental Death and Dismemberment coverage, what is "voluntary accident insurance"
It is one of the two type of AD&D coverage available, and covers accidents at any time and related to any activity, either personal or business
After the employee's termination or retirement, what happens to their LTC coverage?
It may be continued on a direct-pay basis by the employee at group rates without employer contributions toward premiums.
Health Savings Accounts (HSAs) 2022 HSA Limits Max contribution Single: $________ Max contribution Family: $________ Max Out of Pocket Single: $________ Max Out of Pocket Family: $________ Min deductible Single: $________ Min deductible Family: $________
Max contribution Single: $3,650 Max contribution Family: $7,300 Max Out of Pocket Single: $7,050 Max Out of Pocket Family: $14,100 Min deductible Single: $1,400 Min deductible Family: $2,800
What limits the coverage of dependents' group term life coverage
NAIC model laws, and similar laws adopted by states
Health Savings Accounts (HSAs) Does the tax filing status of the participant affect the contribution amount?
No
EXAMPLE: HSA examples Elmer and Donna have family HDHP coverage with a $5,000 deductible. Elmer has no other coverage. Donna also is enrolled in Medicare. Is Donna an eligible individual? Can she contribute to an HSA? Elmer may contribute $____________ to an HSA.
No No 3,650
Will an employer's contributions to the retired lives reserve account be taxable to the preretirement employee?
No, as long as the employee has no constructive receipt or economic benefit. This condition is easily met since the reserve account is not a cash value account and the employee will never have access to it; its one purpose is to pay for group life coverage after retirement.
How are FSAs taxed?
One great advantage with FSAs is that employee deferrals into an FSA are not only free of any income taxes (pretax dollars), but are also free of any payroll (Social Security) taxes. This is an immediate savings of 5.65%—the employee's portion of FICA taxes. Add to this whatever marginal tax bracket an individual falls in, and the FSA can be quite a deal. Even for someone in a low federal tax bracket, such as 12%, they are saving 17.65% when taking into account the 5.65% that they would have lost to payroll taxes.
What is a noncontributory group life insurance plan?
One where the employer pays some the entire premium cost
Some cafeteria plans are structured as pre-packaged benefit plan combinations. What are the pros and cons?
Pro - easier and cheaper for the employer to administer Con - less flexibility for employee
How are proceeds from a group survivor income insurance policy paid?
Proceeds from a group survivor income policy are payable monthly over a specified period, which may be a given number of years or until the spouse's remarriage, death, or attainment of a certain age. The monthly payment schedule is intended to ensure ongoing support for the family.
What is the CARES Act?
The Coronavirus Aid, Relief, and Economic Security Act
Self-Funded ("Self-Insured," "Uninsured") Plan What provided some of the impetus for firms to consider, if not adopt, self-funded plans and why?
The Employee Retirement Income Security Act of 1974 (ERISA) provided some of the impetus for firms to consider, if not adopt, self-funded plans because ERISA exempts self-funded plans from state regulation and places self-funded plans under the jurisdiction of the federal Department of Labor
If an employee received group term life in excess of $50k, how is it taxed? (cafeteria plan)
The cost of group term life insurance coverage over $50k is includable in employee income.
If an employee received group term life in excess of $50k, how is it taxed? (non-cafeteria plan)
The cost of group term life insurance coverage over $50k is includable in employee income.
With respect to group term life insurance policies that have a permanent benefit, if the employee pays a part of the cost of permanent benefits, how is dividend tax handled?
The employee's contributions offset the taxable amount of dividends dollar for dollar, so if an employee paid in $500 but got a $10 dividend, they wouldn't owe taxes because they contributed more than the dividend. If somehow they received $525 in dividends, then the amount taxable would be $25
With Retired lives reserve, what does the employer pay?
The employer pays the current cost and an additional sum to a retired lives reserve account.
Group term life insurance plans have rules around the type and amount of benefits an employer can provide to a relevant group. Discuss.
The plan must provide the same type and amount of benefits to all eligible employees within the relevant group
GULPs allow employees to take their policies with them. What premiums are charged?
The premium charged is usually based on individual rates rather than the group rates, however. Some policies allow retiring employees to continue benefiting from the employer's favorable group rates.
With respect to group term life insurance policies that have a permanent benefit, if the employer pays the premium and gets a tax deduction for it, how is the employee taxed if at all?
The premiums are added to their gross income.
With respect to group paid up coverage, what happens to the whole life coverage over time? The term coverage over time?
The whole life coverage increases as the employee approaches retirement. The term decreases proportionally
How are FSAs taxed (income tax and payroll/ss tax)? This is an immediate savings of ______%, which represents ___________________________________________. Add to this whatever marginal tax bracket an individual falls in, and the FSA can be quite a deal.
They are free from both taxes as pretaxed dollars are used 5.65 - the employee's portion of FICA taxes
____________ types of AD&D coverage are available: name them.
Two business travel insurance voluntary accident insurance
Discuss Vision Insurance and Copayments & limits
Vision insurance includes copays and limits the amount of exams and corrective lenses etc that are covered annually.
Flexible spending account In what way is the employer at risk in plan accounts?.
When a participant elects to defer or redirect salary into the health FSA, the account acts as insurance. The employee's redirected salary is the premium and the reimbursement is the insured benefit. Therefore, when the employee vouchers the plan for a medical expense, the plan must reimburse the expense, assuming it is within the forecast amount, even if the account balance is insufficient to make the payment. In that case, the employer must meet the shortfall. Ordinarily, over the course of the plan year, the salary redirected to the plan will provide the funds to reimburse the employer for advances. However, if the employee terminates within the plan year with a balance owed, the employer will not be reimbursed for the amounts previously advanced. This potential loss is the employer's risk.
Are Health maintenance organizations (HMOs) managed care entities?
Yes
Does Group Term Life Insurance Coverage have ancillary benefits?
Yes
If an employer does not have an HSA option, can an employer establish their own?
Yes
Can small businesses who claim the max 35% health care tax credit also claim a business expense deduction for premiums in excess of the credit?
Yes!
Are contributions to an HSA by someone other than the employer deductible?
Yes; by the individual in whose name the account was set up.
For a group term life insurance plan to qualify for favorable tax treatment, Internal Revenue Code Section 79 requires that
a group term policy furnished by the employer must not discriminate in favor of key employees.
Group term life insurance Although _____________________ is the common form of payment, the employee may have the right to elect ____________________ if specified in the master policy.
a lump sum an installment payout
Under a PPO, the insurance carrier contracts with _________________________________, that agrees to provide the carrier a...
a network of health care providers discount for any patients who receive care from within the network
The amount of Group life insurance coverage an employee usually receives is based on _________________________________________, thus reflecting ____________________________ and __________________________________. Coverage can also be based on ___________________________ or _______________________. Alternatively, a __________ amount of coverage can be provided to all employees, regardless of __________________ level.
a percentage (or multiple) of compensation the value of the employee to the organization keeping pace with cost-of-living increases years of service with the firm position classification level compensation
A group life insurance policy covers
a pooled group of lives rather than an individual life.
Point-of-service (POS) plans operate similar to a PPO (i.e., there is a network of providers available, and the maximum benefit is received via use of network providers). POS plans were initially offered as an _____________ to, and in ____________________ with, an HMO. By having the POS in addition to an HMO, plan participants would have the lowest _____________________ expense following the HMO guidelines. However, individuals wanting to see a provider outside of the HMO network would have coverage through the POS if they were willing to _________________________________. Although POS plans were initially offered only in conjunction with an HMO, stand-alone POS plans are available.
addition conjunction out-of-pocket pay additional out-of-pocket expenses
Cafeteria plans can be more complex and require more time to _____________than other benefits plans
administer
Because GULPs have simplified underwriting, it increases the chances of
adverse selection
Employee contributions to a group life insurance plan are generally made with ________ tax dollars pre after What is the one exception.
after tax A plan may use pre-tax dollars if the coverage is part of a cafeteria plan (Section 125)
For group term life insurance, eligibility to participate must be available to ___________ employees or to _________ members of a _____________ of employees whose membership is based on ________, ________________, or __________________________________. The plan must provide _______________________________ benefits to ____________________ within the relevant _______________.
all all class age marital status work-related factors (such as years of service, compensation, or type of responsibilities) the same type and amount of all eligible employees group
group term life insurance plan Uniformity of benefit amounts does not mean that ___________________________________—it means only that _________________________________________.
all employees must receive the same dollar amount of coverage the same formula for coverage amounts must be applied to all employees. (A formula within the limits described previously is considered the same or a uniform formula.)
Which of these are and aren't covered by an HMO? Routine physicals, well-child care, immunizations, diagnostic screenings
all included in the HMO.
Relative to group term life insurance, what does qualifying under Section 79 do?
allows for favorable tax treatment
Supplemental Group Term Life When it comes to coverage, who decides the amount?
amounts may be specified by the employer or selected by the employee from available options
A group universal life policy (GULP) program offers many of the same advantages as ____________________________, but it is underwritten on a _____________ basis.
an individual universal life policy group
Group health insurance can be provided through three types of entities. Name them.
an insurance company (or Blue Cross/ Blue Shield), a health maintenance organization (HMO), or a self-funded plan established by the employer.
The _____________________ group term life insurance coverage used in 90% of group term life policies has the advantages for the employer of being (3)
annually renewable relatively easy to administer, low in cost, and tax advantaged (premiums are a deductible business expense)
Group term life insurance Generally, the employee may name _______________ as beneficiary. (State law may prohibit naming ________________ as beneficiary.)
any party the employer
An FSA is a __________________ plan consisting of _______________________ funded through ____________________________.
cafeteria various tax-free benefits employee salary reductions
With respect to Group paid up life insurance, at termination, the employee has the option of _________________________ the policy or ___________________________________. Generally, the employee has the right to _________________ any remaining term coverage, if desired.
cashing out leaving the paid-up portion in force at no further cost convert
Traditional Insurance Company Contract ("Fully Insured") The insurance company also assumes the risk of _______________________________.
claims exceeding premiums
For group term life insurance to continue on past retirement, the employer may elect to offer _____________________ of the group policy, which could be funded by a ______________________ or by ________________________________________.
continuation retired lives reserve contributions from the retired employee and the employer
Group LTC insurance policies must give insureds the opportunity to _____________________________ if membership in the group ceases or to ___________________________________ if coverage terminates.
continue benefits convert to individual coverage
With respect to group term life insurance policies that have a permanent benefit, if the employee pays a part of the cost of permanent benefits, then that employee's _____________________________ the taxable amount.
contribution offsets dollar for dollar
Group benefit plans may be offered to employees on a _____________________ basis (employee pays some portion of the cost) or on a _____________________________ basis (employer pays entire cost).
contributory noncontributory
Regarding dependents' group term life coverage, although the NAIC model provides dependent children the ________________ option, some states require only that insurance carriers furnish the option to an ____________ and their ____________.
conversion employee spouse
In addition to the basic consideration of __________, the employer's selection of an appropriate type of group coverage generally involves consideration of factors such as the ______________________ and ________________________. Initial decisions include the ___________________________ and whether the plan will be ______________________ or __________________________.
cost employee profile tax consequences amount of coverage to be offered contributory noncontributory
Some employers offer long-term care (LTC) policies underwritten on a group basis as an employee benefit. As such, group LTC is similar to an individual LTC policy in terms of _____________________________, but the cost to the employee is slightly ___________ than individual coverage.
coverages and benefits less
A comprehensive medical expense plan provides benefits for ________________, ______________, ______________, and ______________________. Comprehensive coverage includes both services covered by a ________________________ plan (hospital and surgical procedures) and those covered by a _______________________ plan (diagnostic and medical services).
diagnostic medical hospital surgical services basic health insurance major medical
Employers generally offer group health insurance that provides both _______________ and medical coverage for employees and their ___________________________. The plan may require employees to contribute some portion of the premium cost for the coverage.
disability dependents
If an employer provides group term insurance with permanent benefits, the permanent portion may pay ____________________________ which are ______________ to the employee.
dividends taxable
Self-Funded ("Self-Insured," "Uninsured") Plan With the minimum premium plan, when does the carrier reimburse the plan?
during the year when benefit payments have exceeded a predetermined level.
Traditional Insurance Company Contract ("Fully Insured") The employer's role is limited to facilitating the insurance company's _________________ of employees and collecting any _____________________________________. Considering the minimal risk and administrative burden associated with the traditional approach, this is generally the most appropriate approach for a _________________ company, as well as many __________ companies.
education employee-paid amounts to fund its premium payments small larger
Prohibited from cafeteria plans are ______________________ programs, _______ insurance, ________________ discounts, ___________ fringe benefits, and ________________ benefits. Only _______ or "____________ benefits," as defined in IRC Section _________, can be offered.
educational assistance LTC employee noncash commuter cash qualified 125
With respect to group term life insurance policies that have a permanent benefit, premiums are deductible by the employer if the _______________________________________ when the premiums are paid. The premium is deductible by the employer and ___________________ in the employee's ____________________.
employee's right to insurance is nonforfeitable includible gross income
With group ordinary coverage, who is required to pay the term and who is required to pay the permanent portion?
employer to pay only the term cost; the permanent portion needs to be entirely supported by the employee.
Tax Consequences of Permanent Insurance If a group permanent life insurance policy's proceeds are payable to the employee's designated beneficiary AND the employee has vested rights in the premiums as they are paid, then the cost of _______________________________________ is reported as ______________________ to the employee, based on the cost of the _______________. If the group policy includes both term and permanent insurance, then how is the cost of the permanent coverage determined?
employer-provided permanent life insurance coverage taxable income coverage using an allocation formula. However, due to the infrequent use of group ordinary and group paid-up policies, practical application of the allocation formula is limited.
Several approaches are available to the employer for funding group benefit plans. In the traditional approach, the employer... The general alternative to the traditional approach—a ______________________ plan—has some ___________ associated with it and may be suitable only for certain types of benefit plans. Thus, in consideration of the company's constraints and the specific benefit plans to be provided, the employer may implement a ____________________________ in an overall benefit program.
engages an insurance company to provide benefit coverage self-funded risk combination of funding approaches
Self-Funded ("Self-Insured," "Uninsured") Plan ERISA-exempt thus refers to plans that are...
exempt from state regulation
Are administrative, marketing, and commission expenses associated with a GULP lower or higher than individual universal life policies? Why?
expenses are typically lower because of the efficiency of dealing with a large group, administrative, marketing, and commission expenses
Once the group medical plan is in force, premiums are based on the ________________________________ and can change at ___________________.
experience of the group each renewal
EXAMPLE: HSA examples John and Diane have family HDHP coverage with a $5,000 deductible. John has no other coverage. Diane also has family coverage with a $200 deductible. John and Diane are treated as having _________ coverage with the ___________ annual deductible ($___). Are John nor Diane eligible individuals? May they contribute to an HSA?
family lowest $200 No No
EXAMPLE: HSA examples Rudy and Lori have family HDHP coverage with a $5,000 deductible. Rudy has no other coverage. Lori also has self-only HDHP coverage with a $2,200 deductible. Both Rudy and Lori are eligible individuals. Rudy and Lori are treated as having only _________ coverage. The combined HSA contribution by Rudy and Lori cannot exceed _______.
family $7,300, to be divided between them by agreement
Traditional Insurance Company Contract ("Fully Insured") The employer has a ________________ responsibility to determine that the strength of the selected insurance company is adequate to bear this risk; that is, the employer should go through a ________________________ process on any insurance company under consideration.
fiduciary due diligence
A cafeteria plan funded only with employee salary redirections is sometimes called a...
flexible spending account
flexible spending account is also known as a
flexible spending arrangement
With an HMO, how do employees choose doctors or other health care providers? ; .
from members of the HMO organization
For establishing group benefit eligibility, employers can establish basic employment criteria. The employee must be • _____________, and • ____________________—that is, not on _________________ or other _______________ status.
full time actively at work disability leave inactive
Self-Funded ("Self-Insured," "Uninsured") Plan An employer may assume the responsibility for _____________________________________________. This approach requires extensive _________________________ support and the ability to _________________________________. Thus, a self-funded plan generally is most feasible for a large employer with an _________________________________ history.
funding claims and administering its benefit program administrative forecast claims and absorb unexpected charges established claims
Accidental Death and Dismemberment coverage may be included in a ______________________ policy or in a ___________________ policy.
group life insurance group health
Group Carve-Out The employer can make enhanced benefits available to a ____________________ by providing them with $50,000 of group term coverage (similar to rank-and-file employees) and _______________________ the executives from the group life term insurance for any amounts over _________________.
group of executives carve out $50,000
A ______________________ plan offers employees the opportunity to participate in ordinary whole life insurance funded by employee and employer contributions. Whether employees choose to participate in or waive the contributory permanent coverage, they will benefit from the employer-paid term life insurance portion of the coverage.
group ordinary
With respect to the inclusion of permanent benefits for a group term life insurance plan, if either a __________ or ________________ is implemented, the _________________ portion of total coverage grows as the employee approaches __________________.
group ordinary or group paid-up policy permanent retirement
Normally, dependents' group term life coverage is offered only with ___________________________________________.
group term coverage on the employee
Often, the benefit of Accidental Death and Dismemberment coverage is a percentage of ______________________________________.
group term life coverage
_______________________________ is the most common type of group policy.
group term life insurance
With respect to the inclusion of permanent benefits for a group term life insurance plan, if either a group ordinary or group paid-up policy is implemented, the permanent portion of total coverage __________ as the employee approaches retirement.
grows
With respect to GULPs, discuss "guaranteed issue". What does the term mean and how does it relate to GULPs?
guaranteed issue means no health questions or medical exam required. It is often available for GULPs if the group is large.
Is eye disease covered by health insurance or vision insurance? What about injury to the eye? What about eye examinations and corrective items?
health insurance covers eye disease and injury. Corrective items are covered by vision insurance
Dental expense insurance is similar to medical expense coverage in the respect that it
helps to pay dental bills
With respect to group term life insurance, how is "key employee" defined?
includes any employee who, at any time during the plan year containing the determination date for the plan year to be tested, was · an officer of the employer with annual compensation from the employer exceeding $200,000 in 2022, · a greater-than-5% owner of the employer, or · a greater-than-1% owner of the employer, having annual compensation from the employer in excess of $150,000.
With respect to group term life insurance policies that have a permanent benefit, if the employee pays nothing toward the cost of permanent benefits, then the dividends are...
includible in gross income when they are actually or constructively received
Due to the temporary nature of group term life insurance, the planner must determine whether the client is willing to rely on employer-provided coverage or would feel more comfortable securing some level of individual coverage to provide protection at termination or retirement. Although conversion privileges generally are offered, premiums _____________________; thus, conversion to an individual policy is apt to be ___________________________ at retirement age.
increase with age prohibitively expensive
A GULP program is implemented through ____________________ contracts with each ____________
individual participant
With respect to the inclusion of permanent benefits for a group term life insurance plan, at the employees retirement, the policy can be converted to an _______________________ at a ___________________ cost than if it had been a....
individual policy more reasonable pure term policy converted at the same age
A group universal life policy (GULP) program offers many of the same benefits as a __________________________________
individual universal life policy
Is the cost of employer-provided insurance coverage of UP TO $2,000 on dependents taxable to the employee?
is excludible as a de minimis fringe benefit.
Is Medical expense benefits taxable to the employee if part of an individual plan? What about if it is part of a cafeteria plan?
it is nontaxable under both circumstances
Is a group survivor income policy payout subject to tax? why or why not?
it is subject to tax because it is not technically life insurance as there are instances when the benefit will not pay out (life insurance will pay out to the estate even if the beneficiaries have passed.
Group term life coverage for dependents is usually a ____________________ amount than the limits established for employees.
lesser
Self-Funded ("Self-Insured," "Uninsured") Plan Another method is called minimum premium plans. In essence, a minimum premium plan....
limits an employer's potential liability on a monthly basis
Relative to group life insurance, the employer should determine if the state has set ________________________________________ and the _____________________________________.
limits on the amount of group term life an employer may provide to employees percentage of employees who must participate
Normally HSA funds cannot be used to pay insurance premiums. However, _________________________________ is an exception to the rule.
long term care insurance
HMO deductible amounts usually are ________________________.
low or nonexistent
The advantages and disadvantages of individual versus group LTC insurance are the same as those for individual versus group insurance generally. Group insurance offers ________________ and people can get coverage without ____________________________________.
lower rates providing evidence of insurability
Contributions to a cafeteria plan are made pre-tax, _______________ your total _____________ income and also _______________ income, Medicare, and Social security taxes
lowering taxable reducing
An accidental death and dismemberment (AD&D) policy provides a___________________ for ____________________________ due to __________________.
lump-sum benefit loss of life or body parts an accident
In an effort to restrain the ever-increasing cost of health care, the vast majority of employees under employer-based group health insurance have some type of _________________________ plan.
managed care.
With Group carve out, how are taxes handled for the executives receiving the extra insurance?
must include the apportioned cost of the coverage in their gross incomes
Typically, vision care plans operate within a ________________________________ and ______________ providers. Does the insured need use this network to receive benefits or can they go outside the network?
network of optometrists eyeglass Generally they need to go to an in-network provider
Do employees have to add the premium payments their employers make to their group LTC coverage to their income so it can be taxed?
no
Is a group carve-out plan is subject to nondiscrimination requirements? Why or why not?
no because there is no tax favored status
Is survivor income insurance a form of life insurance?
no, because payments are conditional upon whether there
Cafeteria Plans Are deferred compensation plans generally permitted to be part of a Cafeteria plan?
no, not generally
Cafeteria Plans Are retirement plans generally permitted to be part of a Cafeteria plan?
no, not generally
To strengthen employee support for a cafeteria plan (and comply with _________________________ requirements), the plan should be structured so that most employees will be able to participate in of the ______________ benefits.
nondiscrimination optional
Supplemental Group Term Life must be offered on a ________________________ basis
nondiscriminatory
Are FSA employee benefits are taxable or non taxable?
nontaxable
Is group LTC coverage extended to other family members (ex: parents or in-laws)?
often, yes.
How is a group universal life policy (GULP) program underwritten?
on a group basis
To say a group term life insurance policy includes permanent benefits means it provides an economic value extending beyond...
one policy year
Cafeteria Plan A cafeteria plan approach allows employees to participate in... That is to say, the employee can...
only those benefits they find useful pick and choose from a menu only those benefits found to be appropriate or desirable
A group ordinary (Section 79) plan offers employees the opportunity to _______________________________________________________.
participate in ordinary whole life insurance funded by employee and employer contributions
Self-Funded ("Self-Insured," "Uninsured") Plan What is a Stop-loss provision in the context of self-funded insurance?
paying for insurance above a certain amount, such as $100,000 For example, the employer may self-insure each employee up to $100,000 in health care expenses and pay for an insurance policy to cover any expenses above $100,000.
Often, the benefit of Accidental Death and Dismemberment coverage is a ____________________________ of group term life coverage.
percentage
To say a group term life insurance policy includes _____________________ means it provides an economic value extending beyond one policy year
permanent benefits
Is the excess coverage provided to executives via Group Carve out typically term or permanent insurance?
permanent insurance.
With respect to the inclusion of permanent benefits for a group term life insurance plan, if either a group ordinary or group paid-up policy is implemented, the __________________________ of total coverage grows as the employee approaches retirement.
permanent portion
If a plan is discriminatory, how are highly compensated employee's effected relative to taxes? Why?
plan may trigger tax consequences to highly compensated employees (HCEs) due to constructive receipt. The Constructive receipt principle basically states that money or property may be taxable to an employee simply because it is available to the employee, regardless of whether they choose to receive the benefit. IRC Section 125 provides that constructive receipt will not apply to cafeteria plans that comply with the Section 125 requirements (i.e., do not discriminate). In a plan that does not meet Section 125 requirements, however, HCEs will be taxed on the available cash benefit.
An important advantage of the GULP plan is the ____________________ . Discuss.
portability If an employee terminates or retires, the policy is usually distributed to the departing employee, who continues to pay premiums to the insurance company.
Self-Funded ("Self-Insured," "Uninsured") Plan Medical and short-term disability benefits are common components of self-funded plans because of their relative ______________________; which two benefits are less often self-funded?
predictability life insurance and long-term disability benefits are less often self-funded.
An HMO provides an alternative for health insurance coverage consisting of a ________________ arranged between the HMO and ____________________.
prepaid plan health care providers
Are employee contributions to an FSA made on a pre or post tax basis?
pretax
A major difference between HMOs and the traditional health care system is the emphasis on _______________________.
preventive care
What are two common views of the role of employee benefits in the eyes of employers.
rewards basic security for employees.
Dental expense insurance is similar to medical expense coverage in the respect that it helps to pay dental bills. Coverage is generally provided for __________ dental care such as __________, _____________, _________, _____________, and __________. Many dental expense plans are offered through _________s that have contracted with ___________________ to provide ____________________________. In order to get the highest reimbursement rates (80%-100%) on the treatment, the insured must choose a dentist that ________________________________. The insured may go outside the network, but reimbursement rates will be much lower (50%-60%).
routine cleanings, fillings, crowns, root canals, and braces PPO particular dentists services for prearranged fees belongs to the PPO network
Self-Funded ("Self-Insured," "Uninsured") Plan The aggregate stop loss may be based upon _____________ for the single participants and a __________________ for family units.
set figures different figure
Small-Business Health Care The small business health care tax credit works on a _________________, with the maximum amount of ______% going to a company with ___________ full-time-equivalent employees with an average wage no __________ than $_______________.
sliding scale 35 10 or fewer greater 25,000
What types of stop loss coverage do most self-funded plans provide?
specific stop loss aggregate stop loss
Additional group term coverage may be provided on a contributory basis to a class of employees or to all employees through a...
supplemental group life policy
An HSA is a ___________________ or _______________ account established with a qualified HSA _____________ or ______________ (which are an _________________ company, ___________, or _________________________________________________________________).
tax-exempt trust custodial trustee custodian insurance bank anyone else approved by the IRS to be a trustee or custodian of an IRA
If the group term life plan discriminates in favor of key employees, the cost of the entire amount of coverage is _______________ to the ________________ based on the _________________________ or ______________________
taxable key employees greater of actual premium cost Table I cost
The purpose of group life insurance is to
temporarily fill the earnings gap that would result from a worker's death, thus protecting the financial well-being of the worker's survivors
Providers seen by people with an HMO are often employees of
the HMO
Health Savings Accounts (HSAs) Health savings accounts (HSAs) were created by what act? and modified by what act?
the Medicare Modernization Act of 2003 the Tax Relief and Health Care Act of 2006
What model limits the amount of life insurance coverage for a dependent spouse or child?
the NAIC model
Among the advantages of group term life for the employee (including the owner/employee) are (2).
the absence of a medical exam requirement and the tax-free nature of the first $50,000 of coverage
With respect to group term life insurance policies, what does it mean if an employee's right to insurance is nonforfeitable?
the benefits are controlled by the employee
What is one standard GULP underwriting requirement regardless of group size?
the employee be actively at work
Tax Consequences of Permanent Insurance The actual cost of permanent coverage premiums paid by the employer is deductible from the employer's income if ... (hint - always think about the other side of the coin when it comes to taxes)
the employee has vested rights to the insurance and, therefore, is being taxed on the premium cost.
With respect to a group term life policy, what is considered favorable tax treatment?
the employee's $50,000 exclusion and employer's deduction
Traditional Insurance Company Contract ("Fully Insured") In a fully insured plan, an insurance company provides benefit coverage based on a contract between __________________________________ . Who pays the premiums and to whom? Who administers the policy? Who is responsible for claims procedures and premiums?
the employer and the insurance provider. The employer pays premiums to the insurance company, and the insurance company, in turn, administers the policy and is responsible for claims procedures and payments.
Self-Funded ("Self-Insured," "Uninsured") Plan The aggregate stop loss pertains to _______________________ and normally is not calculated until ___________________________.
the entire group the end of the plan year
Self-Funded ("Self-Insured," "Uninsured") Plan The aggregate stop loss pertains to _______________________ and normally is not calculated until ___________________________. The aggregate stop loss may be based upon _____________ for the single participants and a __________________ for family units. At the end of the year, the ____________________ is calculated based upon the number of ___________________________ and __________________ that were covered. If the total claims ____________________ the attachment point, the carrier __________________________.
the entire group the end of the plan year set figures different figure attachment point single participants family units exceed reimburses the plan
How are contributions made by an employer to an HSA, including contributions made through a cafeteria plan, taxed? What is the caveat?
they are treated as tax-free employer-provided health coverage for medical expenses. However, employer contributions must be comparable (i.e., in the same amount or the same percentage of the deductible). Employers who violate this rule are subject to a 35% excise tax on the total amount contributed.
The NAIC model limits the coverage for any dependents' group term life coverage ______________________________________________. Normally, coverage for the spouse and children is limited to _________ since ...
to 50% or less of the insurance for the employee $2,000 coverage in greater amounts is subject to taxation
Self-Funded ("Self-Insured," "Uninsured") Plan There are ___________ types of stop-loss, or ______________-loss, coverage:
two excess specific and aggregate.
Cafeteria Plans Large companies frequently use a _________________ structure, where all employees receive a _______________ benefits (such as: ______, __________, and ______________) and then can choose from a group of additional benefits. Credits for the purchase of these additional benefits may be allocated to employees based on factors such as _____________. _____________, or _______________________.
two-level core of basic life, health, and disability insurance salary, age, or years of service
When an employee enrolls in group life insurance, is a medical examination required?
usually not
Group health insurance usually covers disease and injury to the eyes but not routine eye care and vision correction. This coverage gap can be filled with a __________________ plan, which covers (4).
vision care · eye examinations; · the cost of lenses and frames · the cost of contact lenses; and · other corrective items.
What are group survivor income insurance payments conditional upon?
whether there is a survivor or not
How is an FSA funded?
with only employee salary reductions
Are the premiums deductible for the employer if they are making the group LTC policy payments?
yes
Can the small business health care tax credit be carried back or forward to other tax years? A tax-exempt employer can claim a ___________ of up to ______% of costs as long as that amount does not...
yes refund 25 exceed income tax withholding and Medicare tax liability
Some common Group term life coverage formulas include the following (3)
· A percentage or multiple of earnings · An amount of coverage based on years of service · A coverage limit for different classes of employees
There are several reasons ERISA-exempt plans are more appealing, including the following (3)
· Being exempt from state regulation means that the plans do not have to include benefits mandated by specific states. Many of the state-mandated benefits are included within self-funded plans (e.g., providing coverage for mammograms or prostate cancer screenings). However, the self-funded plan is not required to include those benefits. As an example, some states require that group health insurance plans include a benefit for the purchase of wigs or toupees. A fully insured plan would be required to provide the benefit in states having that mandate; a self-funded plan, however, would not be required to do so. There are numerous state mandates that may not be considered medically necessary by some employers and their advisors. · A truly self-funded plan (i.e., a plan that does not have any insurance protection) also saves on what an insurance carrier charges for the risk it assumes, and it saves on state premium tax—usually about 2% of the premium. · The combined savings may approach 5% when comparing the cost of a self-funded plan with a fully insured plan. The savings may allow some employers to provide other types of coverage (e.g., dental care, eyeglasses, or LTC).
Cafeteria Plan Section 125 requires a cafeteria plan to offer two things. Name them.
· a cash benefit that generally is taxable to the employee as compensation, and · one or more qualified benefits that are not taxable to the employee.
Group term life insurance eligibility is considered to be nondiscriminatory if... (4)
· at least 70% of all employees benefit from the plan (or any group term plan through the employer), · at least 85% of participating employees are not key employees (of all group term plan participants), · the plan benefits a nondiscriminatory employee classification, and · the plan is part of a cafeteria plan and coverage complies with the Section 125 nondiscrimination requirements.
Health Savings Accounts (HSAs) To be eligible for the plan, the individual or family must (5):
· be covered by a high-deductible health plan (HDHP), · not be covered by any other non-HDHP, · not be covered by Medicare, · not be claimed as a dependent on another person's tax filing, and · not have any other health coverage.
If fewer than 10 employees comprise the group, the insurance provided to them by the employer may qualify as group term life under Section 79 if 4 things are true/satisfied. Name them.
· coverage is provided for all full-time employees; · the amount of insurance is based on a uniform percentage of compensation; · the amount of insurance on an employee is based on brackets of coverage—with no bracket exceeding the bracket below by more than 21⁄2 times—and the insurance amount on an employee in the lowest bracket is at least 10% of that provided in the top bracket; and evidence of insurability may be requested via a medical questionnaire completed by the employee, but may not be based on a physical examination, and additional voluntary information may not serve as a basis for determining premium rates
Group term life insurance Those employees who need not be counted in measuring the plan's compliance of the previously listed requirements are...(4)
· employees with less than three years of service, · part-time and seasonal employees, · employees excluded because they are covered by a collective bargaining agreement and group term life was the subject of good-faith bargaining, and · certain nonresident aliens.
Relative to the PPACA, discuss "Additional hospital insurance (HI) for high-wage workers"
• Additional hospital insurance (HI) for high-wage workers. The HI (Medicare tax) will increase by 0.9% on wages over $200,000 for an individual and $250,000 for married couples filing jointly. Currently, the tax is 2.9% (1.45% paid by employer, 1.45% paid by employee). This would increase to 3.8% (2.35% paid by employee and 1.45% paid by employer).
Relative to the PPACA, discuss "Additional tax on net investment income for high-wage workers"
• Additional tax on net investment income for high-wage workers. A new 3.8% tax will be levied on the net investment income of high-wage workers (wages over $200,000 for single, $250,000 for married filing jointly).
Relative to the PPACA, discuss "Discounts in the Part D "donut hole.""
• Discounts in the Part D "donut hole." This provides for an annually increasing discount on all brand-name products and biologics in the donut hole. Although the Medicare Part D donut hole technically "closed" in 2020 because patients receive a 75% discount on drugs purchased within the coverage gap, it still exists as the "third phase" before the patient qualifies for catastrophic coverage. The initial Part D deductible is $480 (2022). The Initial Coverage Limit is $4,430 (2022). The Out-of-Pocket Threshold is $7,050 (2022). More simply stated, the coverage gap, also known as the "donut hole," begins when the patient reaches the initial coverage limit ($4,430 in 2022). It ends when the patient spends a total of $7,050 out-of-pocket (2022).
Relative to the PPACA, discuss "FSA contribution limit reduction"
• FSA contribution limit reduction. The allowable contribution amount to an FSA account is reduced to $2,850 a year (2022) and indexed to the CPI for subsequent years.
Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act Highlights
• Immediate access to insurance for uninsured individuals with pre-existing conditions. • Eliminating pre-existing condition exclusion. • Rescissions prohibited. • Eliminating annual and lifetime limits • Preventive health care coverage. • Increased age for coverage of young adults.26 • Discounts in the Part D "donut hole." • Increased additional tax for nonqualified medical expenses. • FSA contribution limit reduction. • Additional hospital insurance (HI) for high-wage workers. • Additional tax on net investment income for high-wage workers • Mandatory employer coverage
Relative to the PPACA, discuss "Increased additional tax for nonqualified medical expenses"
• Increased additional tax for nonqualified medical expenses. Applying to HSAs (health savings accounts) and MSAs (medical savings accounts), the penalty tax for withdrawals prior to age 65 for nonqualified medical expenses increases to 20%.
Relative to the PPACA, discuss "Increased age for coverage of young adults"
• Increased age for coverage of young adults. Insurers that provide dependent coverage for children must continue to offer coverage until the child turns 26. Children can join or remain on a parent's or guardian's plan even if they are married, not living with their parents, attending school, not financially dependent on their parents, or eligible to enroll on their employer's plan.
Relative to the PPACA, discuss "Mandatory employer coverage"
• Mandatory employer coverage. Employers with 50 or more employees must offer coverage to their employees or be subject to fines. For some employers, the fine will actually be less than it would cost to comply. These employers might simply pay the fine and continue not offering coverage, while other employers might actually drop their existing coverage.
Relative to the PPACA, discuss "Preventive health care coverage"
• Preventive health care coverage. All new group health plans and plans in the individual market must provide for first dollar coverage (no copay) for preventive services.
Relative to the PPACA, discuss "Rescissions prohibited"
• Rescissions prohibited. Insurance companies are prohibited from rescinding existing health insurance policies when a person becomes sick as a way of avoiding the costs of coverage.