Staying in Compliance with Health Care Reform: Non-Discrimination Explained

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Staying in Compliance with Health Care Reform: Non-Discrimination Explained

With the health care reform bill, comes many changes to both businesses as well as consumers, both of whom are now trying to navigate and understand the changes that are either coming or have already taken place. Some of these changes impact businesses, such as with the non-discrimination requirements that previously only applied to self-insured plans, but that now also apply to all fully-insured non-grandfathered plans. What does this mean for employers?

First, employers must understand their specific plan design in order to gain a good handle on what plans need to be in compliance. As noted above, all fully insured, non-grandfathered plans must comply, and employers that offer different health plan options or benefits to different classes of employees should consider consulting with their tax or legal advisors to learn more about how the plans they offer will be affected.

Then, the employer should understand that he is responsible for monitoring non-discrimination compliance throughout the plan year. Compliance is satisfied through two non-discrimination tests, one of which is the “eligibility test.” This test says that the plan cannot discriminate in favor of highly compensated individuals with regard to their eligibility to participate. There are three ways to pass the eligibility test:

  1. The 70% test
    1. The plan benefits 70% or more of al non-excludable employees
  2. The 70/80 test
    1. The plan benefits 80% or more of all non-excludable employees eligible to benefit, if 70% or more are eligible to benefit under the plan.
  3. The non-discriminatory classification test
    1. The plan benefits a non-discriminatory classification of employees.

A plan may pass the eligibility test by excluding certain categories of employees, including the following:

  • Employees without 3 years of service
  • Employees under 25
  • Part-time or seasonal employees
  • Non-resident aliens with no US income

The other test is called the “benefits test,” which states that the benefits provided under the plan must not discriminate in favor of highly compensated individuals. This means that the plan should have the following features built into the plan:

  1. That the required employee contribution is the same for each benefit level.
  2. That the maximum benefit level cannot vary based on percent of compensation, age or years of service.
  3. That the benefits offered to highly compensated individuals are also offered to all other participants.
  4. That there is no variance in waiting periods.

If a plan does not pass these tests, a $100 per day penalty will accrue per incident, making it imperative that a company understands these regulations and remains in compliance at all times.  The implementation for this was originally scheduled for the 2010 calender year but has now been postponed to start Jan. 1st, 2012.

Section 125 POP Plans now require annual Non-Discrimination testing. TaxFreePremiums includes non-discrimination testing software with their Section 125 POP Plan, as well as a summary plan description, signature ready board resolution, and a checklist of necessary steps to complete your plan.  Get started with your Section 125 POP plan online in just 5 minutes.

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