Retiree coverage under medical reimbursement plan.

• Author: O'Driscoll, David

Established a plan (P) that reimburses eligible employees for medical care expenses (as defined in Sec. 213) incurred by the employee and his or her spouse and dependents (as defined in Sec. 152). P reimburses only substantiated and otherwise unreimbursed medical expenses; employees have no right to receive cash or other benefits under P. E also sponsors a group health plan, under which eligible employees can elect from various options.

Eligible employees may elect among three coverage options under P E accrues a notional annual contribution on each participant's behalf based on the enrollee's option and whether the participant is enrolled in employee--only or family coverage under E's group health plan. The annual contribution not used during the plan year is carried over for use in subsequent plan years if the employee continues to participate in P.

Under P, covered expenses are those that would otherwise be covered by the group health plan, but for which no benefits are paid due to the group health plan's deductible, co-payment and coinsurance provisions. Such covered expenses are first subject to a deductible; additional covered expenses are reimbursed. The deductible and maximum reimbursement amount available to a participant each P year vary, based on the enrollee's option and whether an expense is incurred in or out of network. Although a maximum annual contribution is designated at the beginning of the P year, only an additional pro-rata portion of such amount is available for reimbursement of medical expenses for each pay period.

Retiree Coverage

E proposes to add a "spend down option" to P, available to all participants who retire and meet certain criteria of E's retirement plan. Under this option, P would continue to reimburse all eligible retired employees for medical care, until all unused accumulated amounts are exhausted. E also proposes to contribute to P an amount equal to all or a portion of the value of a retired employee's unused sick days at retirement. Retired employees make no election as to the contribution of sick days and have no right to receive their value in cash or other benefits. Prior to the beginning of each P year, E will determine whether it will contribute all or a portion of the unused sick days to P on behalf of employees who retire during that year.

In Rev. Rul. 2002-41, 2002-2 CB 75, an employer sponsored a health reimbursement arrangement (HRA) paid for solely by the employer and not through salary...