This is an exceptional article that talks about a very unknown, yet very important part of the Affordable Care Act that very few people are talking about. Please read below…
Nondiscrimination rules, an elephant in the room
Health care reform is here, and benefits managers everywhere are frantically planning to meet the new requirements. The problem is that planning with the rules currently in place is like trying to build a skyscraper on a piece of swampland in the Florida Everglades.
As most employers worry about whether to “pay or play” as of 2014 and whether or not certain employees will need to be counted as full-time for health care reform purposes, there is an elephant in the room that is not yet getting enough notice. This elephant is the approaching nondiscrimination rules that apply to all health plans that are not grandfathered.
One of the most common questions I receive from employers is, “can we offer different health benefits to different employees?” For the better part of the last 20 years, the answer has been, “yes, as long as your plan is fully insured.”
Prior to health care reform, the law prohibited only self-funded health plans from discriminating in favor of highly compensated employees with regard to health insurance benefits. Employers were able to provide executive medical plans, class-based benefits, and overall better benefits packages to executives. But health care reform changes that, applying nondiscrimination to all group health plans. This may not seem that significant, but in reality, it changes the entire health insurance landscape.
The real problem with the extension of the nondiscrimination rules is that the rules – as currently written – are convoluted and hard to apply.
Under the current law applicable to self-funded health plans, the term “highly compensated” means:
- The five highest paid officers of the company;
- A shareholder who owns 10% in value of stock of the company; and
- An employee among the highest paid 25% of all employees.
Once an employer determines who is a highly compensated employee and who is not, the employer is then tasked with making sure that the health insurance plan or plans being provided are not discriminating in favor of those highly compensated employees as to either eligibility or benefits.
While eligibility is usually the easier part of the test – a health plan that applies the same eligibility rules to all employees regardless of compensation, position, etc. will pass this part of the test – many plans treat different groups of employees differently. This will need to end to avoid failing the nondiscrimination test.
Another important aspect of the eligibility rule is that it is applied on a “controlled group” basis. This means that employees of another company in the same controlled group must be considered in your company’s nondiscrimination testing even if those employees are not eligible for the plan being tested. This has always been a hassle for self-funded plan and will surely be just as much of a hassle for all health plans in the future.
High penalties for noncompliance
What’s even worse than the current test provided under the law is that fully insured plan sponsors that violate the nondiscrimination rules will be subject to a $100 per day per failure penalty, which will likely apply to each non highly compensated employee…
Click here to read more at the Employee Benefits News website.
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