A large employer with a fully-insured plan has noticed a trend...employees with family coverage are covering their dependents and their spouse is also covering dependents on their employer's plan. In order to discourage their employees electing this "double coverage", they want to give employees a subsidy, say $100 a week to elect single coverage. Currently they pay around 67% of premiums for each employee, regardless of if single, employee + 1, or family coverage is elected. Can they do this? Is there any reg or law that we can present the employer to show why they can't?

Kathy,

An employer can offer a cash incentive to its employees in an attempt to induce them to waive insurance coverage. Thousands of employers both public and private have these types of "cash out" plans. The problem that must be avoided when an employee is given a choice between taxable and non taxble benefits is constructive receipt. The employees who take the health insurance could be liable to taxation on the dollar value of the cash incentive they did not take but could have taken. Adopting Section 125 plan will offer those employees protection from the constructive receipt problem that arises in such situations.

The easiest way of discouraging this practice is to put a nonduplication of coverage provision into the contract and communicating very clearly what that entails.