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IRS Delays Enforcement of Health Care Reform Nondiscrimination Provisions for Insured Group Plans

  • December 28, 2010

The Internal Revenue Service has given a last-minute holiday gift to sponsors of insured group health plans.  It announced delayed enforcement for the new nondiscrimination provisions applicable to insured group health plans under the Patient Protection and Affordable Care Act of 2010 (as amended by the Health Care and Education Reconciliation Act of 2010; together the “Health Care Reform Law”).

The Health Care Reform Law requires non-grandfathered insured group health plans to satisfy the requirements of Internal Revenue Code Section 105(h)(2), previously applicable only to self-funded group health plans.  Thus, the new law effectively prohibits non-grandfathered insured group health plans from favoring highly compensated individuals with respect to eligibility or benefits.  It further provides that rules “similar to” Code Section 105(h)(3), (4), and (8) would apply, but left it to the enforcement agencies (including IRS) to come up with  those rules.  Meanwhile, the Health Care Reform Law would require sponsors of noncompliant plans to pay a hefty excise tax ($100 per day per affected individual) beginning, for most, with the 2011 plan year.  This seemingly sounded a death knell for many executive medical arrangements and sent employers in search of alternative ways to meet contractual obligations and otherwise continue to provide desired benefits without running afoul of the new law. 

The IRS issued Notice 2011-1 on December 22, 2010, which provides relief from the excise tax applicable to the nondiscrimination provision.  As an added token of holiday spirit, the IRS suggested that the regulations, once issued, would not apply until the plan year beginning some period of time thereafter.

In the same notice, the IRS requested additional public comments on the application of the nondiscrimination rules to insured group health plans.  Comments must be submitted not later than March 11, 2011.  Regulations, therefore, are not expected until April or later.

Jackson Lewis attorneys are available to answer inquiries regarding this and other workplace developments.

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