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self-insured plans in the midst of controlled group with other fully-insured plans - 105(h) discrimination rules?


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Facts: Client has about 7,000 employees at 28 different companies, all in a controlled group. All but 1,000 employees are covered by fully-insured health/dental plan. The remaining 1,000 employees, who are all employed at one of the subs., have a choice among 3 self-insured health/dental plans. There are HCEs in both the fully-insured plan and the self-insured plans.

105(h)(8) states that the 105(h) discrimination rules apply on a controlled group basis. The benefits test in 105(h) states that any benefit provided to a HCE must be provided to a NHCE, and the regulations tell us that we look at both the type and value of benefits. The regulations also tell us that we can aggregate plans for purposes of satisfying the 105 non-discrimination tests. Further, the regulations tell us that we can offset benefits provided in other plans for purposes of satisfying the tests. There seems to be little guidance out there on how to practically apply these rules.

What if there are some components/benefits in the self-insured plans that are more favorable than the fully-insured plans? In comparing the plans, some of the benefits in the fully-insured plan are better than the self-insured plan(s) and vice-versa. Also, what is a "benefit"? What if a copay or deductible in the self-insured plan is lower than a copay or deductible in the fully-insured plan - is the amount of a copay/deductible a benefit? What if some surgery is covered in the self-insured plan(s) that is not covered in the fully-insured plan?

There is certainly no intent to discriminate and the differences in the plans, from a practical standpoint, seem that they should be ok. However, the benefits test in 105(h) is strict in that it says every benefit offered to HCEs has to be offered to NHCEs. So, if cosmetic surgery is covered in a self-insured plan (which would cover an HCE) and is not covered in the fully-insured plan at another subsidiary which has NHCEs participating, 105 is violated because there are NHCEs out there who cannot get this benefit? Surely this can't be the outcome . . .

Any thoughts on this would be appreciated!

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