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105(h) Nondiscrimination/ PPACA 2716


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Does anyone know whether an employer who pays a higher percentage of premiums for executives violates 105(h)? In other words, would a health plan that provides different levels of employer contributions to different classes of employees run afoul of the nondiscrimination rules in 105(h)? The IRS is slated to issue guidance on Section 2716 of PPACA and IRC Section 105(h) later this year. Thank you.

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Does anyone know whether an employer who pays a higher percentage of premiums for executives violates 105(h)? In other words, would a health plan that provides different levels of employer contributions to different classes of employees run afoul of the nondiscrimination rules in 105(h)? The IRS is slated to issue guidance on Section 2716 of PPACA and IRC Section 105(h) later this year. Thank you.

It is likely that if an employer pays a higher percentage of the premium for fully insured medical coverage for highly compensated individuals than for other employees, the arrangement will violate PPACA's new nondiscrimination rules. Of course, we need guidance on how the tests will be applied. Note that the new tests do not apply to the extent that the plan is grandfathered.

Also note that this arrangement likely violates the Code Section 125 nondiscrimination rules to the extent that the HCIs pay a portion of the premium on a pre-tax basis through a cafeteria plan.

If it is a self-insured plan, the arrangement likely will already fail the 105(h) tests.

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Would this just apply as a group, or also on an individual level? Like if you just have one HCI who had a special deal on their premiums, would that make it discriminatory, or as long as they don't sway the full percentage too much it might be ok? I hope that made sense.

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Would this just apply as a group, or also on an individual level? Like if you just have one HCI who had a special deal on their premiums, would that make it discriminatory, or as long as they don't sway the full percentage too much it might be ok? I hope that made sense.

We don't know how the IRS and the other regulators will apply the tests but I imagine that your scenario will be problematic.

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Another point to consider, and for which I haven't seen any guidance, is how such a plan can maintain grandfathered status. That is, if on March 23, 2010, the plan contributed X for certain HCIs and Y for everyone else, and if members of the X group are "similarly-situated" to those in the Y group, then what figure do you use to measure the employer's contribution rate to the cost of coverage for purposes of determining whether the plan loses GF status? I think the answer is that you use the highest figure, which could mean that the employer may end up having to pay 95% of the cost of coverage for everyone else if it wanted to continue paying 100% for the certain HCIs.

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