Can a govermental agency contract with an employee to pay an expense with no limitation on what the agency will pay? For example, can the county agree that in lieu of insurance coverage, the county will pay all of an employee's medical expenses each month, as well as the tax consequenses of the payments? My thought is that it can't be done, since the agency can't commit themselves to funds that exceed the agency's revenue. How do they even budget this expense?

I have lots of questions on this topic, so if any of you "civil-minded" attorneys have some answers, please give me a call!

Stephanie
stephanie.stephens@co.nacogdoches.tx.us
936.560.7766

CHAPTER 157. ASSISTANCE, BENEFITS, AND WORKING CONDITIONS OF COUNTY
OFFICERS AND EMPLOYEES

SUBCHAPTER A. MEDICAL CARE, HOSPITALIZATION, AND INSURANCE

Ann's citation to the provisions of the Local Government Code authorizing provision of health coverage is significant, since counties have only the authority conferred upon them constitutionally or statutorily. Your fears about article 11, section 7 of the constitution (prohibiting counties from incurring debt unless payable out of current revenues or a 2 percent interest and sinking fund) could be well-founded, depending on how the plan ultimately is worded. On a much more fundamental level, it's a bad idea for at least a couple of reasons. First, participation in a health plan generally allows the county to avail itself of contractually lower prices through those providers who agree to participate ("network providers"). In the absence of that protection, the county is likely to pay market prices, which can be as much as twice to three times the amount contemplated within a network discount. Second, it is foreseeable that an "agreement" with employees to reimburse medical expenses for any particular time period could, through the conjuring of an adept plaintiff's lawyer, translate into a contractual limitation (for whatever time period reimbursement is tied to) upon the at-will status of county employees.

The other problem is paying "tax consequences"--the view of IRS is that any benefit is taxable, but there are statutory exceptions provided for certain health insurance premiums, health accounts and so forth.

However, one can not simply agree to pay someone else's taxes, without that person incurring potential tax liability for the income received as payment of those taxes. For example, if the tax were $200, then the receipt of the $200 would be taxable as income and would not be treated the same as an business expense reimbursement.

Indeed, paying the medical bills directly and not through an ERISA plan, might or might not result in tax liability to the individual for every dollar reimbursed or paid on his behalf.

And then there becomes the witholding of taxes issue and potential penalties for failure to properly withold...........

All of which tells me that I would need the advice of a very good tax and ERISA attorney before giving any further serious consideration to such ideas, or else the Texas Constitution and budget may turn out to be the least of the concern when IRS and the FBI starts inquirying.

[This message was edited by LV on 09-16-05 at .]

My first thought when reading your post was, even if this is legal, why would the county want to obligate itself to pay what could turn out to be huge medical bills.

What if this employee gets cancer and has millions of dollars worth of treatment? What if the employee is in a terrible accident and has to have round-the-clock nursing care?

It seems to me that the practical pitfalls outlined in all the posts mitigate against entering into this sort of agreement, even if it is completely legal.