IRS Delays Nondiscrimination Requirements: Relief for Some But Not All
The Patient Protection and Affordable Care Act (“PPACA”), imposes nondiscrimination requirements on non-grandfathered, fully insured group health plans that are not excepted from the HIPAA Portability requirements. For most employers, this means their fully insured major medical coverage is now subject to eligibility and benefit nondiscrimination requirements similar to the nondiscrimination requirements that have applied to self-insured group health plans for years.
The nondiscrimination requirements for fully insured group health plans were originally effective for plan years beginning on or after September 23, 2010. PPACA attempted to piggy-back fully insured group health plan nondiscrimination onto nondiscrimination in the self-insured context as if nondiscrimination in the self-insured context was a beacon of clarity. Various stakeholders, including employers that were going to need to comply with the new requirements, quickly brought to light that nondiscrimination in the self-insured context is anything but a beacon of clarity. Also, differences between self-insured nondiscrimination under the Internal Revenue Code and fully insured nondiscrimination under a different federal statute, the Public Health Services Act (“PHSA”), compounded the uncertainty.
Amidst these numerous issues, the IRS issued IRS Notice 2011-1 (January 10, 2011) delaying the effective date of the nondiscrimination requirements under PPACA and requesting the submission of written comments. These requirements will not become effective at least until the IRS issues additional guidance in response to those comments. The IRS indicated it expects to give employers a period of time after the guidance is issued to make any necessary changes to their plans.
Caution: The delay does not impact self-insured group health plans, whether grandfathered or not. Why? In order for the delay to be effective, the plan must first be subject to the new requirements under PPACA. So the delay only applies to fully insured, non-grandfathered group health plans not excepted from HIPAA portability.
As noted above, many of the issues contributing to the delay are also issues with self-insured group health plans. For example:
- Is satisfaction of the nondiscriminatory eligibility test based on (1) who is eligible to participate regardless of whether they actually participate, or (2) those who actually participate?
- Do “benefits” for purposes of the nondiscriminatory benefits test include employer contributions? Or do differing employer contributions create multiple plan structures for purposes of the eligibility test?
Because of these “shared” issues, it is very likely that guidance with respect to fully insured group health plans will also impact self-insured group health plans.
As the regulators review and evaluate the comments received in response to IRS Notice 2011-1, plan sponsors (e.g., employers) should inventory their group health plans.
- Identify the means by which benefits are provided (insured or self-insured).
Remember: Self-insured group health plans must still comply. They are not impacted by PPACA or the subsequent delay.
- With respect to the fully insured group health plans – identify which plans are excepted from HIPAA Portability.
Nondiscrimination is one of the PPACA requirements that only applies with respect to group health plans that are not excepted from HIPAA Portability.
- With respect to those plans – identify which are grandfathered plans.
Once effective, the nondiscrimination requirements do not apply to fully insured plans that are grandfathered.
- With respect to the non-grandfathered plans – identify potential nondiscrimination issues
- Differences in eligibility, including those excluded from participating (i.e., not eligible under the terms of the plan).
- Differences in benefits, including differences in the employer-paid portion of the cost of coverage.
- Differences in waiting periods among groups of employees.
- Identify programs only made available to highly compensated individuals or made available to groups that consist mostly of highly compensated individuals.
Don’t Forget: Consider employment agreements, special deals, severance arrangements, settlement agreements, retiree programs, etc. Any of these could result in a “difference” considered discriminatory.
Finally, sponsors of both insured and self-insured group health plans should watch the direction of the regulatory efforts. Because many of the issues raised are also issues in the self-insured context, regulatory guidance will likely impact both fully insured and self-insured group health plans. Regulators may take opportunity to clear up some of the lingering issues regarding self-insured nondiscrimination testing.
Please contact us if you have any questions.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.