Icky feeling

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Cami

Boxer Insane
You know when something happens or you are presented with having to make a choice/decision and you get an icky feeling? Almost like a gut instinct. I am going through something right now that just doesn't seem quite right to me and before I make a decision I am trying to get some opinions.

I would love to give you the short version but it is sort of confusing.

My DH owns his own company (s. corp). He is the sole employee of the company. He gets a regular W2 like any other employee would.

He works AT another company who "hires" his company. DH shows up to work and at the end of the week this company pays HIS company.

Owner of the company my DH works AT also owns another company (unrelated industry). We'll call this owner "Bob".

Bob's other company offer health insurance, etc....benefits to his employees. Bob wants to increase my DH's "pay" (money he pays DH's company) but the funds are not there at this time. He decided that he would offer additional compensation in the form of benefits. We were blown away by his very generous offer but it isn't every day that someone wants to GIVE us something so we had to wrap our brains around it for a bit. We currently pay $700/month for our own health insurance so this would be like getting an $8400/year raise. Not chump change for sure. :D

Here is where it gets dicey and what gives me the "icky" feeling.

Not understanding how this was going to work Bob said he was going to add DH to his original company as an employee. Pay him $1.00/year. He would be an official employee. Get a W2 for that one dollar yearly. Bob (his company) would pay for the entire cost of coverage for employee + spouse. Health insurance, dental, vision and life. He say's that under his company's group plan (better rates) he could cover us for $300 - $500/month. The costs are a full deduction for his company plus he would get some sort of tax credit as well. He said and I quote..."It is his company, his money and he can do what he wants with it."

Okay. I understand THAT however it just SCREAMS insurance fraud TO ME.

Now.....DH has in fact done work for Bob AT the other company but not been directly compensated for it, rather paid via the company Bob owns that hires DH's company.

I've tried to analyze this till I am blue in the face.
While "technically" he can add DH to his employee roster by paying him $1.00/year, generate a legit W2 he still does not actually WORK at the company. There HAS TO BE some sort of criteria (one would think) BY the insurance company that mandates what an actual eligible employee is. Bob does offer insurance to part-time employees but they actually work. :LOL:

I am of the mindset that even if someone/company has done this sort of thing in the past and "got away with it" it still doesn't make it "legal".

God forbid we go to make a claim for some major medical crisis and be denied coverage due to DH not meeting the criteria of an eligible employee. Bob also points out to me (when I keep questioning him) that Steve Jobs paid himself only $1.00 year and one might assume he had health benefits! I get that but one can also assume he actually WORKED.

Friends/family say that Bob didn't get where he is today (very successful) by doing things illegal. He wouldn't EVER risk the health coverage for his 50 employees just to fraud the insurance company to get insurance for my DH. I don't know what to do.

Usually when it sounds too good to be true it usually is. When your gut tells you something just isn't right and when you get an icky feeling you should usually listen to it! Am I just being a nervous Nellie here and more so perhaps just still in shock that someone wants to do this for us? DH just thinks this is wonderful and isn't really thinking about the potential risks that I keep wondering about.

I have an application sitting in front of me to start the benefits but I can't fill a good portion of it in since it asks about HOW "employee" is paid (hourly, salary, hire date, hours worked, etc...). I've been putting this off since January....7 months now!

Thoughts? Opinions?
 

Sansal

Boxer Insane
Hmmm, I think it is not really insurance fraud since he would be paying the cost of the coverage to the insurance company. I always thought it would be more up to the employer to decide which employees to offer insurance to and what the criteria are. But I am no expert! Can't 'Bob' tell you whether the insurance company has any such criteria? If they do then I probably also wouldn't feel comfortable, but if they don't....
 

Cami

Boxer Insane
Can't 'Bob' tell you whether the insurance company has any such criteria?

I highly doubt it. He has "people" for that (human resources). LOL

I feel that by my continued delay to take him up on his offer and all of my seemingly nit-picky questions I might end up messing this up. I don't want to be offensive to him AT ALL and we really do appreciate the generosity he has offered. It's just......still icky for some reason.
 

LILYLARUE

Boxer Insane
It doesn't seem like fraud. If there is any legal issues, it will fall on the employer, "Bob". Sometimes, employers have to cover subcontractors and such, so it's not too unusual to have a person on insurance, but not really on the payroll, per se. There may be a criteria of hours worked, but the pay really means nothing to the auditor. My family company insured two of our kids for years. They never "worked" nor got paid. The info on the application is to search for rates based on the health history. The pay will effect the life insurance portion, as to what catagory and tier the employee would fall. As of now, there is no coorelation between IRS wage reporting and Insured network employees.

Seems like Bob is trying to help you and himself out by adding an employee and getting a better rate, also a tax deduction for him. I'm not seeing a red flag as far as YOU are concerned, legally. For Bob, he can decide who to put on his policy, but it's the insurance that has limits and criteria for enrollment. If you can be put on and fit the criteria, I see no issue as far as YOU are concerned. Once on, Insurance can not deny coverage. If there are any issues, it would come to light during enrollment. I wouldn't cancel your own coverage until you are sure you fulfilled enrollment into Bob's policy.

I will add one thought though. Coverage limits, co-pays, out of pocket expenses and what's covered will be out of your hands. You won't have any control, and possible that you will have to switch doctors to be in Bob's insurance network of physicians. As well as, choice of hospitals, specialists. So you have to think if it's even worth it to switch pending on the health issues of you and hubby (kids too).
 

Cami

Boxer Insane
Lisa you make it seem do-able with your excellent explanation. I guess I am just having a hard time with the fact that someone is doing something so generous. I know he/his company can afford it but still.....
The insurance company is actually the same one we have now so not really any issues (that I can see) with respect to providers, etc...
I do not know what tier we will be in with respect to deductibles, co-pays etc, but once open enrollment comes along later in the fall *typically* we will have access to change things if need be (per Bob).
Our current policy premium isn't due until the 15th so we have a bit of time to see what's going to happen. I don't plan on cancelling anything until I have alternative coverage in place with PROOF (no matter what we decide).
Either or we are on COBRA now and have 6 months to make a decision.
Thanks for your thoughts!
 

packblt

Completely Boxer Crazy
This arrangement is not all that uncommon here in NY, especially among family and close friends. The only thing is here the $1.00 would not “fly”. It needs to be a more realistic amount, like 15-20 hours per week at minimum wage. This is verified by the insurance companies every year at renewal time by collecting copies of the quarterly state unemployment insurance returns to verify who is on payroll (legitimate employees) and at what amount. Even if this were the case where you are, the invoices that DH sends to Bob’s company could have a “discount” (equal to the cost of the wages and employment taxes) for just about anything. Bob may be like one of my clients that worked hard to get all that he has and it’s his way of giving back because he is a really nice person.

It may feel “icky” because it’s not technically correct and it may feel a bit like "cheating" the system.
 

Cami

Boxer Insane
Even if this were the case where you are, the invoices that DH sends to Bob’s company could have a “discount” (equal to the cost of the wages and employment taxes) for just about anything.

I'm not sure what you mean by this? DH won't be sending any invoices to Bob's company. It's my understanding that Bob's company will produce a W2 for DH sometime in January of each year with the appropriate taxes withheld for that income....of $1.00.

It may feel “icky” because it’s not technically correct and it may feel a bit like "cheating" the system.

YES!! This is what it feels like. There has to be a right or wrong answer.
For the moment we have given them the application and they will be submitting it to the insurance company. I will let them make the final decision. One might assume that they will make their decision based on the info we provided AND the info included from Bob/his company. If they approve it I can't NOT accept that they said it was okay. Well I could be that wouldn't make sense!
 

packblt

Completely Boxer Crazy
Ok maybe I’m not reading this right but doesn’t one of Bob’s companies pay DH’s company? This is where I was going with the “creative accounting” (needed more in small business). But really it doesn’t matter because I’m sure Bob’s company that will issue the W-2 likely has a “Cafeteria Plan” in effect and the net effect of employee wages – employee insurance deductions will net to the $1.00 for income tax purposes.

Also, I am going to doubt that the insurance company scrutinizes the employer that’s covering 50+ employees – those premiums are large and I’m sure they don’t want to turn the business away. Bob’s HR people are probably able to negotiate lower premiums with the more employees they have participating in the plan.

As long as you have a good relationship with Bob it’s likely a win –win situation for both.

Sorry if I made it sound confusing, sometimes I over analyze – hazard of the job.
 

tastubbs

Boxer Insane
This sounds to me like Bob has realized that your husband may be considered a statutory employee under the laws of the state where you live and is trying to correct it (in some way). There are some pretty straight forward IRS regulations about whether someone can be treated as a contractor vs an employee. Perhaps his accountant has advised him to "get right" with your husband. Do you have an accountant or attorney you can consult?
 

elgerdes

Completely Boxer Crazy
Ok maybe I’m not reading this right but doesn’t one of Bob’s companies pay DH’s company? This is where I was going with the “creative accounting” (needed more in small business). But really it doesn’t matter because I’m sure Bob’s company that will issue the W-2 likely has a “Cafeteria Plan” in effect and the net effect of employee wages – employee insurance deductions will net to the $1.00 for income tax purposes.

Also, I am going to doubt that the insurance company scrutinizes the employer that’s covering 50+ employees – those premiums are large and I’m sure they don’t want to turn the business away. Bob’s HR people are probably able to negotiate lower premiums with the more employees they have participating in the plan.

As long as you have a good relationship with Bob it’s likely a win –win situation for both.

Sorry if I made it sound confusing, sometimes I over analyze – hazard of the job.

I will have to say I would tend to agree with this. Adding your DH as an employee vs contractor allows him to reap the benefits of a full-timer. It's also a very nice tax deduction for the employer. And IF the employer wants that tax deduction, they will be very sure to make sure this is on the "up and up."

Sometimes this can seem sketchy, but as everyone else has stated, even if there was something not legal, it falls to the employer, not DH. I say go for it! (Also, I consulted all my HR text books and BLaw books, didn't see anything saying this wouldn't be ok)
 
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