Nondiscrimination in Health Plans

One of the elements of the Health Care Reform was to require that employer health plans not be discriminatory in favor of the highly compensated employers. (Grandfathered plans were exempt from this requirement.) The penalty for noncompliance is an excise tax of $100 per day, per non-highly compensated individuals against whom the discrimination occurs. However, it is not clear whether the discrimination would be based on premium rate, benefits provided, or even the differences in the health provider network.

Thankfully, the IRS has delayed the effective date of this requirement until further guidance has been issued. Given the complexity of health plans and the lack of clarity on the definition of “discrimination,” this is a welcome delay.

The IRS has also asked for input from the public on how discrimination should be determined; whether there should be some provisions for companies who have employees in different states; and whether there should be any “safe harbor” plan designs. The IRS has also indicated that there will be sufficient time after guidance has been issued before the effective date of the new rules for employers to bring their plans into compliance. It is anticipated that this means the discrimination rules would not be effective before January 2012.

If you require assistance on how the Health Care Reform impacts your company, contact one of Larkin Hoffman’s experienced Benefits attorneys.