• Happy New Year from the IRS: Delayed Application of Nondiscrimination Rules
  • December 30, 2010 | Author: Mary V. Bauman
  • Law Firm: Miller Johnson - Grand Rapids Office
  • The IRS has given employers maintaining nongrandfathered fully-insured group health plans a holiday present: delayed application of the new nondiscrimination rules under Health Care Reform.

    Under Health Care Reform, for plan years beginning on or after September 23, 2010, a fully-insured group health plan that does not maintain grandfathered status is subject to nondiscrimination rules. The legislation imposes requirements “similar to” the rules which prohibit a self-funded group health plan from discriminating in favor of highly compensated individuals with respect to eligibility and benefits on nongrandfathered fully-insured group health plans. The use of the “similar to” terminology has led to uncertainty as to how the new requirements apply. If an employer maintains a discriminatory nongrandfathered fully-insured group health plan, an excise tax in an amount equal to $100 per day per adversely affected individual will apply. The excise tax is to be reported by filing IRS Form 8928.

    In Notice 2011-1 released on December 22, 2010, the IRS announced it has determined, in consultation with the U.S. Departments of Labor and Health and Human Services, that regulatory guidance is essential to implement this provision of Health Care Reform. As a result, the IRS indicated it will not require nongrandfathered fully-insured group health plans to comply with this provision until plan years beginning after a certain period of time following issuance of regulations. The IRS is in the process of drafting regulations and is asking for comments as part of the process. Comments may be submitted until March 11, 2011.

    What Should Employers Do in Response?

    If you sponsor a fully-insured group health plan which will not be grandfathered in 2011, after you breathe a sigh of relief, you should still proceed to analyze whether your plan is discriminatory under the regulations which apply to self-funded group health plans. Conducting this analysis will give you a good idea as to whether your current plan design may be an issue and whether you will need to make adjustments for future plan years when the regulations become effective.