AHIP Says Group Health Plans Face Complex Nondiscrimination Tests
By Sara Hansard
Publication Date: 09/01/2010
Insured group health plans will face “new and complex challenges” in meeting tax regulations designed to prevent discrimination in favor of high-paid employees under the new health care reform law, according to a white paper America's Health Insurance Plans sent to its executive members Aug. 17.
There is “substantial overlap” between the so-called nondiscrimination requirements for cafeteria-type employee benefit plans and those that insured group health plans will be required to follow as of Sept. 23, but there also are substantial differences, according to New Nondiscrimination Requirements for Fully Insured Group Health Plans. The paper was written by law firm Davis & Harman LLP for AHIP, which represents about 1,300 insurers covering 200 million people.
Definitions for highly compensated employees differ, and tests that are used to determine if benefits are being given disproportionately to highly compensated executives are not the same, the white paper said.
Further, insured health benefits provided solely to highly compensated employees, such as fully insured executive medical plans, generally will be prohibited under the law, the paper said.
The Patient Protection and Affordable Care Act (PPACA, Pub. L. No. 111-148) extends nondiscrimination requirements of the Internal Revenue Code to most insured group health plans, except for “grandfathered” plans that were in existence on March 23 when PPACA was signed into law.
Plans that run afoul of the rules face excise taxes of $100 per day for each employee whose benefits are not in compliance, up to 10 percent of the cost of the group health plan or $500,000, whichever is less, the paper said.
While the nondiscrimination requirements only apply to fully insured group health plans, “it is possible that the new requirements could ultimately have a material impact on self-insured plans,” according to the paper, which was written by partners Jason Bortz, Seth Perretta, and managing partner Randolf Hardock.
Agencies that are implementing PPACA reportedly have been working on guidance interpreting the provision, but it is not clear whether such guidance will be issued before Sept. 23, the paper said.
Tests Under Nondiscrimination Rules
Under the nondiscrimination rules, insured group health plans generally must meet eligibility tests showing that they benefit at least 70 percent of all employees, as well as a test requiring that all benefits provided for highly compensation individuals be provided for all other participants, the paper said.
If group health plans require employees to pay a portion of premiums and a substantial portion of employees do not participate in the plan, “the plan may have an eligibility problem,” the paper said. “This may become an even greater issue if, for example, a substantial number of employees opt out to obtain coverage through a health insurance exchange or decide to obtain coverage from a spouse's employer.”
The complete text of this article can be found in the BNA Daily Tax Report, September 1, 2010. For comprehensive coverage of taxation, pension, budget, and accounting issues, sign up for a free trial or subscribe to the BNA Daily Tax Report today. Learn more »
© 2010, The Bureau of National Affairs, Inc.
