New Nondiscrimination Requirements For Health Insurance


The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively

referred to as the "Health Care Act") impose significant penalties on employers who discriminate in providing health insurance benefits. Although these penalties were often overlooked in the healthcare reform debate, employers must take the appropriate steps to make sure that all group health insurance plans conform to the new requirements.

Historically, employer-provided health care coverage (other than self-insured plans) was not subject to nondiscrimination

requirements. The Health Care Act now imposes nondiscrimination requirements for insured group coverage. The nondiscrimination requirements that applied to self-insured plans before enactment of the Health Care Act continue. Therefore, this Client Alert focuses on the new nondiscrimination requirements that relate to employer-provided group health insurance coverage only.

Nondiscrimination Requirements. The Health Care Act incorporates the substantive nondiscrimination requirements of Internal Revenue Code Section 105(h) (but not the taxes on highly compensated individuals in Section 105(h)(1)) and applies

them to insured group health plans.

Generally, a plan discriminates in favor of highly compensated individuals unless (a) the plan benefits 70 percent or more of all employees, (b) at least 70 percent of all nonexcludable employees must be eligible to participate and at least 80 percent of all eligible employees must participate, or (c) the IRS finds the classification of employees to be nondiscriminatory. A "highly compensated individual" is an individual who is (i) one of the five highest paid officers, (ii) a shareholder who owns more than 10 percent in value of the stock of the employer, or (iii) among the highest paid 25 percent of all employees.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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