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Health Plans, Made Simple

SBSB is here to guide you through the complexities of today’s insurance marketplace. We hope you find our website a useful resource. But, if you need live help call our Private Client Group 800-548-6900 Toll-Free and get expert advice from a licensed professional on your insurance needs.

Section 125 Plans
Health Reimbursement Arrangements
Health Savings Accounts
Massachusetts Minimum Creditable Coverage (MMC)
COBRA (A/K/A the Consolidated Omnibus Budget Reconciliation Act)
COBRA Subsidy Extension Through May 31, 2010

Section 125 Plans

Pursuant to Section 125 of the Internal Revenue Code, a Section 125 Plan (also known as a Cafeteria Plan) permits employees to choose between receiving normal cash wages or to pay for certain qualified benefits on a pre-tax basis.

Essentially, employees are entering into a salary reduction agreement with the employer. Under this agreement, the employee elects to reduce his/her compensation by a stated amount on a pre-tax basis and those amounts are considered by the IRS to be employer contributions. By giving up the right to receive part of his/her salary before becoming entitled to it, the compensation is neither considered wages for the purpose of state and federal income tax, nor subject of FICA withholding.

Additionally, under a Section 125 Plan, health care coverage premiums may be paid entirely by employee salary reduction—employer contributions are not required.

PLEASE NOTE: Under the Health Care Reform Law, Massachusetts employers of 11 or more full-time-equivalent employees must offer a Section 125 Plan.

Premium Only Plan (POP Plan)
A POP Plan is a type of plan that gives employees a choice between taxable benefits (i.e. cash compensation) and traditional health, dental, and/or other benefits. By offering a POP Plan, employees pay for the same benefits currently elected with pre-tax dollars and employers lower their taxable payroll by the amount of the employee contributions—it’s a win-win situation for the employer and the employee.

Key Advantages for Employers:
  1. Save on payroll taxes
  2. Cushion insurance rate increases

Key Advantages for Employees:
  1. Federal (state and local where applicable) tax savings
  2. FICA tax savings

Because pre-tax dollars are used to pay for benefits, employees often realize an increase in their take-home pay and reduce their taxable income. Further, depending on the benefits elected by the employers, employees may also be able to pay for non-reimbursed medial expenses and/or dependent care expenses pre-tax for expenses currently paid for with after-tax dollars. See Flexible Spending Accounts (FSAs).

Flexible Spending Accounts (FSAs)

An FSA allows an employee to defer a part of each paycheck for either health care or dependent care expenses. The amount the employee elects to defer is not subject to federal income, FICA and state income taxes in many states.

Most plan sponsors have implemented a flexible benefit plan or are considering such a program are trying to achieve one or more of the following goals:

  1. Controlling or containing overall benefit costs
  2. Mitigating increases in medical plan costs
  3. Introducing new benefits at no cost to the employer
  4. Introducing tax-advantaged benefits
  5. Attracting and retaining key personnel
  6. Meeting diverse employee population needs
  7. Encouraging employees to be proactive in deciding on health care options and the cost and delivery of services

Health Reimbursement Arrangements

An HRA or Health Reimbursement Arrangement is an agreement the employer makes to reimburse plan members for a certain amount of medical expenses incurred during the year. As health care costs rise, so do health premiums. As a result, many employers have eliminated health care coverage for their employees.

Employer's often select this plan if they want to continue to provide health care coverage, but need to hold down the cost for the overall good of the business. Savings can be substantial compared to traditional coverage options using an HRA styled health insurance plan.

  1. Are federally approved programs
  2. Best premium savings in conjunction with a High Deductable Health Plan (HDHP)
  3. Reimburse employees for a pre-determined amount of medical expenses (typically part of the deductible) they and their families incur during the year
  4. Expenses employers reimburse are tax deductible for their business and tax free for employees
  5. No need to pre-fund employee accounts; pay as you go

Health Savings Accounts

Health Savings Accounts offer a different way for consumers to pay for their health care. HSAs enable you to pay for current health expenses and/or save for future qualified medical and retiree health expenses on a tax-free basis.

You must be covered by a High Deductible Health Plan (HDHP) to be able to take advantage of HSAs. An HDHP generally costs less than what traditional health care coverage costs, so the money that you save on insurance can therefore be put into the Health Savings Account.

You own and you control the money in your HSA. Decisions on how to spend the money are made by you without interference from a third party or a health insurer. You also decide what types of investments to make with the money in the account in order to make it grow.

Massachusetts Minimum Creditable Coverage (MMC)

MCC is the "floor" of benefits that adult tax filers need to be considered insured and avoid tax penalties in Massachusetts. Massachusetts-licensed health insurance companies must put an MCC-compliance notice on their plans to indicate if it does or does not meet MCC. Please note that most do meet the MCC standards.

Starting on January 1, 2009, specific benefits will be required under MCC. Check your plan to see if it meets the MCC standards for 2009. If you are uncertain, your employer's human resources department or benefits administrator can probably help you, if you get health coverage through your job.

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COBRA (A/K/A the Consolidated Omnibus Budget Reconciliation Act)

Passed in 1986, COBRA amends the Employee Retirement Income Security Act, the Internal Revenue Code and the Public Health Service Act to provide continuation of group health coverage that otherwise might be terminated.

COBRA provides certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events. Group health coverage for COBRA participants is usually more expensive than health coverage for active employees, since usually the employer pays a part of the premium for active employees while COBRA participants generally pay the entire premium themselves. It is ordinarily less expensive, though, than individual health coverage.

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COBRA Subsidy Extension Through May 31, 2010

The President signed the Temporary Extension Act of 2010 (TEA) on March 2, 2010, and the Continuing Extension Act of 2010 (CEA) on April 15, 2010 which included an extension of the COBRA subsidy. The subsidy eligibility is now available through May 31, 2010. The extensions also expanded subsidy eligibility to individuals who experience a qualifying event that is a reduction in hours followed by an involuntary termination of employment. In order to be eligible, the reduction in hours must have occurred any time from September 1, 2008 through May 31, 2010, followed by the involuntary termination of employment from March 2, 1010 through May 31, 2010. The maximum period of continuation coverage does not change from the original qualifying event date being the reduction in hours, instead the subsidy is available for the remainder of the COBRA time starting with the period after the termination of employment.

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