Important information for employers with fully insured medical plans


New Nondiscrimination Rule Under Health Care Reform

As you are no doubt aware, the determination as to whether a medical plan is “grandfathered” for purposes of the Patient Protection and Affordable Care Act has many important implications. One very important consequence is that an insured group medical plan that is not grandfathered must comply with the nondiscrimination rules that previously applied only to self-insured medical plans. Generally, the nondiscrimination rules prohibit providing more favorable coverage or benefits to even one highly compensated individual (anyone in the top 25% of the workforce by compensation).

The following are some common arrangements that may result in prohibited discrimination: Salaried employees become eligible under the terms of the plan earlier than hourly employees; Executive premiums are less than premiums charged to non-executives; An employment or severance agreement with an executive provides that the employer will provide medical coverage to the executive after retirement until the executive attains age 65 where other retirees are not eligible for this benefit; and, A severance agreement with a highly compensated employee provides that the employer will pay the terminated employee’s COBRA premiums when other terminated employees are not eligible for a similar benefit.

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