Non-Discrimination Rule Changes in 2012
The non-discrimination rule that applies to some benefit plans will increase its impact once final regulations are released. The 105(h) rules prohibited employers with self-funded plans from creating a benefit package that shows preference to some individuals over others. The IRS will include fully funded plans in this requirement once the regulatory guidance is released.
The non-discrimination rule doesn’t apply to race. Instead, it is a way for the government to make sure that business owners and upper management don’t take advantage of tax benefits meant to help average individuals afford healthcare. The regulation applies to highly compensated individual, or HCi’s.
An HCI is a person who is a shareholder with more than 10% of employer stock, a high paid employee, or a high paid officer of the company. The business can’t offer to pay more of an HCI’s insurance benefit, offer better quality benefits, or offer a higher contribution. While some differences in benefit packages may occur based on specific employee contributions, those differences can’t discriminate or exclude lower paid employees.
A self funded insurance plan is an employer sponsored healthcare plan where an employee pays most or all of the premiums. This can be accomplished with employee payroll deductions, flexible spending account, or both. A fully funded insurance plan is where an employer pays the insurance premiums as a part of its benefit package.
Self funded insurance plans had to adhere to the 105(h) non-discrimination rule since the ACA was enacted in 2010. That December, however, the IRS decided to exclude fully funded plans so that regulatory guidance could be created and released.
It is not certain when fully funded plans will be expected to comply with non-discrimination rules. It is also not apparent whether the rules for fully funded plans will be the same as those for self-funded plans.
If your company offers fully funded insurance plans as a part of your benefit package, you will need to monitor changes to the non-discrimination plans as they occur. Once the IRS announces the regulation, your company should review your benefits to see if they are in compliance. You will also need to know whether your insurance plan is grandfathered, as that will affect its need for compliance.
For more information regarding compliance to non-decimation rules, explore our website. Our contact us to learn more.