10/14/2010
Understanding reform's nondiscrimination provision
The federal Patient Protection and Affordable Care Act includes applying Internal Revenue Code 105(h) to employers offering insured benefit plans. This prohibits employers from discriminating in favor of highly compensated employees and is referred to as "nondiscrimination."
What do you need to know about nondiscrimination?
- Nondiscrimination rules apply to non-grandfathered, fully insured group plans purchased or renewed after Sept. 23, 2010. While we expect that Health and Human Services (HHS) [the federal agency that enforces health care reform] will issue additional guidance on the nondiscrimination requirements, we still need to comply with the reform provision while we wait for that guidance.
- The nondiscrimination rules in IRC 105(h) previously applied only to self-funded group plans.
- The penalty for noncompliance is $100 per day per "affected" employee, but we won't know how the penalty will be calculated until HHS issues its guidance.
How do employers determine if they are in compliance with the nondiscrimination requirements under the new law?
IRC 105(h) and accompanying IRS rules are complicated. Compliance is determined by a mathematical test that takes into account employee salaries, stock ownership, number of part-time and seasonal employees, length of service, percentage of premium paid by the employer, etc.
Given the complexity of the nondiscrimination test, and the sensitivity of the information involved, we can't know whether a given group's plan complies with the nondiscrimination requirement. Therefore, we highly recommend that employers seek their own legal or tax counsel for testing and more information as necessary.
What do we ask you to do with this information?
- Provide information about the nondiscrimination requirements (and the potential penalties) to all new and renewing customers.
- Encourage employers to seek their own counsel about how the nondiscrimination requirements may or may not affect their plans.
Thank you for your assistance in ensuring that our customers are fully informed of potential impacts health care reform may have on their health benefits. If you have any questions about our approach to the new law's nondiscrimination requirements or other reform provisions, please talk to your Regence Sales contact.
Health insurers continue to receive information from Health and Human Services (HHS) regarding the Patient Protection and Affordable Care Act. Therefore, this information has changed and will continue to change. The information provided in this document should not be construed as legal advice.
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