First dollar coverage is a health care insurance scheme or a plan that pays the employee’s deductibles and co-payments such that the beneficiary does not need to do out-of-pocket payments. In Medicare, some supplement insurance schemes (Medigap) provides the first dollar coverage health insurance plans (First Dollar Coverage, 2009).The plan has recently become controversial in various debates over Medicare costs and policies as it is said to correlate with higher utilization rates of services. Arguably, the scheme’s beneficiaries may use unnecessary medical services or the doctors may recommend unnecessary tests, procedures, scans, and other medical services. In addition, it is argued that some beneficiaries use this scheme as required while those who do not have it forego the health care services because of their high costs. The beneficiaries’ health care insurance begins to pay its share of their covered services from the first service they receive in the plan network (First Dollar Coverage, 2009). Contrary to this service, a fee-for-service insurance plan is where payments for covered services begin as soon as the deductibles are met. In this policy, the insurer pays for all the expenses when the insured event happens.
- Maria and John would like to know if the tax code of the First Dollar Coverage will influence their decision to provide health care insurance for their employees.
In Maria and John’s case, the first dollar coverage insurance plan will influence their decision in providing health care insurance for their employees (First Dollar Coverage, 2009). This is because; the insurance premiums are paid by the contributions from both the employer and the employee. Though there is usually a maximum limit of amount to be paid in this policy, the policy includes all the deductibles, coinsurance costs or anything else, because the plan carries more risk for the insurer and the plan has high monthly premiums.
- If Maria and John decide to pay their employees’ insurance premiums, are the premiums taxable as employee income?
If Maria and John decide to pay their employees’ insurance premiums, the premiums are not taxable as employee income. This is because the employer will have already deducted the premiums and paid them in the plan. Hence, the premiums are not in any way whatsoever a part of the employee’s income. The premiums are considered as a part of the monthly deductibles.
- What is the effect on their taxes if the employees pay the premiums themselves?
If the employees pay the premiums themselves, the amount of taxes they pay increases. This is because, the premiums are not deducted by the employer as co-insurance premiums, and the employees receive the funds as a part of their monthly incomes (First Dollar Coverage, 2009). The premiums that are not deducted push the employee to a higher cluster of tax rates, hence influencing the increased their tax amount.
- What is the tax treatment of costs on expenses directly incurred by employees?
The tax treatment of costs on expenses directly incurred by employees is catered for by the employer. For example, if an employee spends some amount before the first dollar coverage premiums are paid, then the employer refunds the amount spent and is hence responsible for the taxation of the premiums to be submitted later.
- Describe the possible Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO) plans that would cover a small business.
A health Maintenance Organization (HMO) offers and plans managed care for health insurance; self-funded health care benefit plans, individuals, and other entities in the US in liaison with health care providers on prepaid basis (Beam & Mac Fadden, 2001). HMOs contract with health care providers to provide health care services within a specific service area. Membership to a certain HMO strictly requires one to be living in a particular HMO area. With the exception of emergency cases, a HMO member must use the doctors in their area including covered students living away for schooling purposes. Preferred Provider Organization (PPO) is an arranged care organization of medical service providers who agree with an insurer or a third-party administrator to provide health care at reduced rates to the insurer or administrator’s clients. Both plans may cover small businesses operating from a specific area.
- Evaluate group life insurance contracts for the employees of Pepa’s restaurants. Identify the contract that:
- Is nondiscriminatory in nature—regardless of the income of an employee and providing up to $50,000 per employee tax exemption
Various insurance companies offer insurance solutions for the hotel industry that includes restaurants. Among the types of insurance covers that are included in the insurance covers includes; property’s and the contents loss or damage, including theft, glass breakages, employee’s unfaithfulness, machinery breakdown and so on. It also includes public and product liability- damage to property and injury to the staff members, loss of revenue and profits decline caused by business interruptions such as riots, terrorism, natural calamities, and political instability and violence. As we evaluate group life insurance contracts for the employees of Pepa’s restaurants, we identify the various risks that the employees face in their daily routine and analyze the insurance cover that works ‘well for them. A social insurance health care policy cover, for example, may include the basic risks like, illnesses, and mere accidents. Restaurant employees are also subject to such risks as fire, theft and burglary burns and so on. Some insurance contracts for full restaurant employees are programmed such that the employees are made to be part time employees so that the employer avoids covering those same employees medical coverage. As hotels and restaurants reform their hospitality businesses, they consider such a contract to help address the cost implications and expenses of health care and such needs from their employees (Beam & Mac Fadden, 2001).
In providing such insurance contracts, some are nondiscriminatory in nature—regardless of the income of an employee and providing up to $50,000 per employee tax exemption. In such instances, the employer submits the employee’s premiums to a minimum of $ 50000 as tax exemptions and regardless of the employee ought income, the employer to consider the employer without discriminating them in terms of their incomes. Since the employer must provide affordable health insurance to their employees, some consider employing fewer full-timers and more part-timers to reduce the high insurance costs from the full time (permanent) employees.
- Provide cash value accumulation for an employee.
Some health care insurance contracts offered to restaurant employees provide cash value accumulation for an employee. Cash value is a portion of one’s policy’s death benefits that have been liquidated and grows at different rates in various insurers. While one borrows against this policy and passes on with unpaid loan, the death gain reduces by the sum of the unpaid borrowed amount. This means that the amount is guaranteed to be available as “cash” in the policy at that time, with the assumptions that the employee has no loans and all the premiums are paid. If the policy is a participating whole life policy, there may be additional cash available in the form of accumulated dividends. If all premiums are paid, at the age of 65 years, it is expected that the policy will be worth $ 50000 to the employee, assuming that the employee has no loans. If the beneficiary dies, the cash value goes with the pure insurance part, to pay off the insurance amount.
- Provides employees the option of continuing coverage at retirement
In order for the cash value contract to provide employees the option of continuing coverage at retirement, the employee must not take any loans using the amount as the security, and ensure that all the monthly premiums are paid promptly. The risk arises from the fact that it is a part of the contributor’s death benefit. Thus, one needs to consider whether if there would be enough death benefit left to fulfill their reason for buying the insurance, could they die before the day they borrow the money.
The insurance contract must provide coverage without evidence of insurability. In the following ways, life insurance cash value policy is used;
- Paying the policy premiums- this guarantees the insurer of the contributor’s commitment to the policy.
- One can borrow the cash value to pay large expenses, at lower rates than banks offer. Hence, the borrower is able to service a cash value loan than a bank loan due to the lower interest rates.
- Forming an asset portfolio that sustains and accumulate prosperity. This enhances growth, and development to the employees.
- Cash value policy can be used for expenses in retirement.
- Provides coverage without evidence of insurability
The contract provides coverage without evidence of insurability to the employee because, as long as the premiums are paid promptly and has no any loans, then there is a guarantee to receive the cash value amount at retirement. This does not require any evidence of insurability, security, and collateral items to guarantee the cash value at the retirement age.
Beam, B. T., & MacFadden, J. J. (2001). Employee benefits. Chicago, Ill: Real Estate Education Co.
First Dollar Coverage. (n.d.) Farlex Financial Dictionary. (2009). Retrieved August 21 2014 from http://financial-dictionary.thefreedictionary.com/First+Dollar+Coverage