• Guidance on Non-Discrimination Rules for Insured Plans
  • October 14, 2010 | Author: Cynthia Y. Lee
  • Law Firm: Faegre & Benson LLP - Minneapolis Office
  • Internal Revenue Code Section 105(h) describes non-discrimination rules that apply to self-funded group health plans. PPACA extends the Section 105(h) non-discrimination requirements to non-grandfathered fully-insured group health plans. Unfortunately, even though Section 105(h) was added to the Code in 1978, other than final regulations that were published in 1981, little guidance has been issued regarding its interpretation and historically, there has been very little enforcement of the Section 105(h) rules even to self-funded plans.

    On September 20, 2010, the IRS issued Notice 2010-63, which provides some initial guidance on the application of the Section 105(h) non-discrimination requirements to insured group health plans. It states that insured plans must comply with the rules for plan years beginning on or after September 23, 2010. It also clarifies that although the penalty for a self-funded plan’s failure to comply with Section 105(h) remains the same (i.e., the highly compensated individuals lose a tax benefit), the penalty for an insured group health plan’s non-compliance is much broader: the plan would be subject to a civil action to compel it to provide nondiscriminatory benefits and the plan or plan sponsor would be subject to an excise tax or civil money penalty of $100 per day per individual discriminated against.

    Recognizing that the final regulations under Code Section 105(h) were issued back in 1981, the IRS also requested comments on the extension of these non-discrimination rules to insured group health plans.