1. We’re considering providing an opt-out provision to only a designated group of employees. Under this provision, an employee who decides to opt-out of the health coverage will receive a cash payment of $400 per month. What are the consequences of offering this option?
2. A spouse of one of our deceased employees has just elected to continue group health coverage under COBRA after her husband's death. She is over age 65 and has not elected to enroll in Medicare. Will continuing health coverage under COBRA have any impact on the amount of premium she has to pay for Medicare coverage in the future?

1. We’re considering providing an opt-out provision to only a designated group of employees. Under this provision, an employee who decides to opt-out of the health coverage will receive a cash payment of $400 per month. What are the consequences of offering this option?
By offering the choice of cash or benefits to employees, Ms. Elizabeth Purcell of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities) indicates that you would be offering employees a benefit under a cafeteria plan. For any health coverage under this option to be nontaxable, it must meet the written plan document provisions of Code Section 125 and must be offered to a nondiscriminatory group of employees. If you already offer a cafeteria plan to your employees, you must add this option to the cafeteria plan document and the option must also pass the nondiscrimination tests. If you offer this option to a group of employees that are mostly highly compensated, the option will fail the eligibility test under the cafeteria plan nondiscrimination test and any health coverage offered under this option will be taxable to the extent found to be discriminatory.

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2. A spouse of one of our deceased employees has just elected to continue group health coverage under COBRA after her husband's death. She is over age 65 and has not elected to enroll in Medicare. Will continuing health coverage under COBRA have any impact on the amount of premium she has to pay for Medicare coverage in the future?
Yes. Generally, if an individual does not enroll in Medicare when he or she is first entitled to it, the individual must pay more when he or she ultimately does enroll, as provided in 42 CFR Section 408.22. Premiums for Medicare Part B go up 10% for each 12 months that they could have enrolled but did not and premiums for Medicare Part A (if paying a premium is required) go up 10% no matter how late an individual enrolls for coverage

A special enrollment period is available for those who did not enroll in Medicare when first entitled because they had coverage under a group health plan due to their current (or their spouse's current) employment status, as provided in 42 U.S.C. Section 1395p(i). Individuals enrolling during a special enrollment period do not have to pay the increased premiums.

COBRA coverage is not considered a group health plan based upon current employment. (Even when the COBRA coverage is based upon a reduction of hours, it is in effect because the individual no longer qualifies for the regular group health plan coverage based upon current employment.) Therefore, individuals who, in order to retain their COBRA coverage, do not enroll in Medicare when first eligible will not have special enrollment rights under Medicare and may expect to pay more for Medicare when COBRA coverage ends.

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