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105(h) Nondiscrimination Tests


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An employer sponsoring a self-insured plan offers two health insurance packages, one for highly compensated individuals and one for non-highly compensated individuals. (The example is simplified from the actual situation and is hypothetical.)

HCIs can choose among an HMO, a $400/$800 deductible PPO, a $1,000/$3,000 deductible PPO, and a $3,000/$6,000 deductible HDHP.

Non-HCIs can choose among a $0 deductible PPO, a $500/$1,000 deductible PPO, a $1,000/$3,000 deductible PPO, and a $3,000/$6,000 deductible HDHP.

Other than the deductibles, the benefits offered under each of the options is the same.

Does this arrangement violate the benefits portion of the self-insured medical plan nondiscrimination tests because the benefits offered to the HCIs are not "identical" to those offered to the non-HCIs? (That is, non-HCIs cannot elect the HMO or the $400/$800 deductible PPO.)

Thanks!

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Is this a trick question?

105 allows an employer to offer multiple plans but the issue is focused around benefit levels, contribution and eligibility. It appears that each group has access to the same, or very similar, benefit levels, except that the non-HCI actually have an additional PPO option and the HCI have an HMO option.

It is rare that the HMO would be self-funded, so assuming the HMO is fully-insured, that plan would be excluded from the calculations.

My guess is that this is ok.

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My hesitation is that 1.105-11©(3) states that a plan provides discriminatory benefits "unless all the benefits provided for participants who are highly compensated individuals are provided for all other participants" (emphasis added).

In my scenario, this is not the case.

Would your answer change if the HCIs had one more PPO option than non-HCIs? Under what circumstances will a disparity in benefits make the plan discriminatory?

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Other than a slight difference in deductible amounts in the one ppo (400 vs 500) it appears that benefits are the same and the non-HCI's have an additional benefit ($0 copay) that is not available to the HCI...am I missing something? It is highly doubtful that this employer would have a problem.

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Other than a slight difference in deductible amounts in the one ppo (400 vs 500) it appears that benefits are the same and the non-HCI's have an additional benefit ($0 copay) that is not available to the HCI...am I missing something? It is highly doubtful that this employer would have a problem.

As I mentioned earlier, the regulation requires that the benefits be the same. They are not the same. Hence my question. (My example is a hypothetical that I made up on the spot. For sake of discussion, let's assume that the HCIs have one more option than non-HCIs. Still no problem?)

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Other than a slight difference in deductible amounts in the one ppo (400 vs 500) it appears that benefits are the same and the non-HCI's have an additional benefit ($0 copay) that is not available to the HCI...am I missing something? It is highly doubtful that this employer would have a problem.

As I mentioned earlier, the regulation requires that the benefits be the same. They are not the same. Hence my question. (My example is a hypothetical that I made up on the spot. For sake of discussion, let's assume that the HCIs have one more option than non-HCIs. Still no problem?)

I agree to a certain point. Since the difference is a small difference with the deductibles and the non-hci's have access to an even better plan of benefits, there does not appear to be a problem, which is why I said "highly doubtful" in my repsonse. But the only way to know for sure is to have the govt review and pass judgement.

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  • 4 weeks later...
Guest andrearlov61

That seems to be a fair move. I'm new to this. How do you usually go about have the government review this? I mean what should I do first? Is there any walk through on doing this?

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