Why the CHAMP plan works from a legal and practical standpoint.
As a business owner or corporate executive, you may have been approached by brokers or companies promoting various types of wellness and/or healthcare reimbursement arrangements. The typical advocate claims that under such plans, both the employer and employees can save tax dollars, the employee participants receive an increase in take-home pay, and the employees are eligible to receive virtual medical benefits. The question that many companies and executives are asking – and rightfully so – Is this too good to be true?
The answer to this key question depends on the plan being promoted. There are key differentiating factors between non-compliant programs and other legitimate plans. Once you understand these factors, you can make an informed decision regarding your company’s healthcare plan.
Issues Related to Certain Unrelated “Wellness Plan” Arrangements
Certain articles largely based on isolated cases and related scrutiny address a situation referred to as the classic “double dip.” First, employees pay for their portion of the cost of an otherwise excludable employer health plan through pretax salary reduction. Second, employees are paid a portion of their salary reduction contribution, purportedly on a tax-free basis, to bring their take-home pay back up to the pre-salary reduction level. In the original scenario, the payments were characterized by the promoter as “reimbursements” for the cost of the health plan. The IRS has made clear in Revenue Ruling 2002-3 that the purported tax-free payments are in fact taxable wages subject to income and employment taxes and withholding. Subsequent IRS memos have addressed more recent variations on this theme.
How is Champ Different?
CHAMP Plan Basics
The CHAMP Plan is a single employer-sponsored plan comprised of two separate components: (1) the pre-tax Champion Health Minimum Essential Coverage Plan (the “MEC Plan”); and (2) the post-tax Champion Health Population Management Plan (the “Health Population Management Plan”).
MEC Plan Component
The MEC Plan is the pre-tax component of the CHAMP Plan. The employee premiums required for participation in the MEC Plan are made via pre-tax payroll deductions under IRC Section 125. As provided under Section 125, CHAMP Plan participants elect to receive qualified benefits under the MEC Plan instead of cash.
Under the MEC Plan, members have full access to in person physician office and urgent care services, prescriptions, and preventive care services, as set forth in the plan. Benefit claim payments for this CHAMP Plan component are paid directly to providers for treatment provided to members. Accordingly, there are no tax implications for the member or the employer Plan Sponsor.
Health Population Management Plan Component
The Health Population Management Plan is the post-tax component of the CHAMP Plan. The employee payments required for participation in the Health Population Management Plan are made via post-tax payroll deductions in accordance with applicable law.
Under the Health Population Management Plan, members complete an initial health risk assessment, which in turn generates a CPT code that corresponds with a claims payment allocated to such task. Based upon the risk assessment, the Health Population Management Plan evaluates the specific needs of the member and prescribes the future Health Population Management Plan services needed for the member to achieve plan compliance. Thereafter, when the member completes a prescribed Health Management activity or task, the applicable CPT code is generated, and a corresponding claims payment is made to the member. This payment is properly excludable from the member’s gross income under Section 104(a)(3).
CHAMP Plan Distinguishing Factors
While it’s clear that certain plan arrangements have attempted to impermissibly reduce certain taxes or “double-dip”, the CHAMP Plan is wholly distinguishable from these arrangements.
Premium payments for the Health Population Management Plan component are made post-tax. Accordingly, any related claims reimbursement payments received under this plan component are not taxable.
It’s simple – there is no “double-dipping” if the premium payments were taxed in the first place.
This is why the CHAMP Plan is distinguishable from other similar plans. It’s a HUGELY important distinction.
About the author:
Emily Langdon is a partner/shareholder at Fraser Stryker PC LLO, a large law firm based in Omaha, NE. Fraser Stryker was established 125 years ago and has corporate and litigation clients across all industries, both national and international.
Emily leads Fraser Stryker’s practice on employee benefits, ERISA, and executive compensation. She has significant experience advising clients regarding health and welfare benefits plans, qualified and nonqualified retirement plans, equity incentive plans, and wellness plans.
