Clarification on nondiscrimination and carve-outs
In September 2010 the Internal Revenue Service issued an IRS Notice about the nondiscrimination provision of the health care reform law, which applies to nongrandfathered, fully insured plans. The notice states that HHS and DOL "have reviewed this notice and have advised the Department of the Treasury and the Internal Revenue Service that they agree with it." The IRS requested comments on the notice by November 4.
To summarize the language in the IRS notice and the health care reform law:
· The rules for determining compliance for fully insured plans are the same as the rules that apply for self-insured plans. These rules are outlined in Internal Revenue Code Section 105.
· Penalties for noncompliance by fully insured plans are different from penalties for self-insured plans. Penalties may include a $100 per person per day penalty for each violation. The penalty could be imposed on the group, the insurer and "other." (It's our understanding that "other" may include third-party administrators. We do not believe it includes brokers. However it has not been clearly defined.)
Our approach to this provision remains unchanged from the guidance we provided in September:
· Executive Plans - We will continue to offer the existing plans on a grandfathered basis, eliminating annual limits on "essential health benefits."
· Management-Only/Class Plans (for example, salary vs. hourly employees) - We do not develop plans only for a specific set of employees. Additionally, we do not track or record the compensation information of employees in health plans to determine if a plan is only being offered to highly compensated individuals. Therefore, we are relying on the employer or group to ensure compliance with this requirement of the health care reform law.
We realize your clients continue to inquire about the impact of this provision, particularly as it pertains to management carve-out plans. We will provide more clarification and guidance when the regulations are finalized. In the meantime, these articles provide more details that may be useful to customers. These external links should not be relied upon as legal/benefits advice.
Employee Benefit News: