Insured health coverage for different classes of employees

[cathyw]

An accountant posed this question, and I'm not as strong on health benefits as I am on retirement benefits.  A small company that currently doesn't offer any group health plan acquires the assets of another small company, along with 3 employees from that company.  Those 3 employees had group health coverage and the acquiring company is continuing that benefit for them.

Does the company have to offer group health coverage to it's other employees?  Can the company create different classes of employees and offer some classes but not others?  Can the company have different employee contributory rates towards premiums (to be done through a 125 plan)?

The company has fewer than 50 employees, and all the employees are NHCEs.  The owner would not be included in the health plan.

Thanks for your input. 

[leevena]

It is permissible for an employer to offer to some employees and not to others, as long as there is no discrimination and that all employees in the group being offered coverage are treated the same.  Based on what you have posted, there should be no legal problems.

There is no legal requirement to offer benefits.  Classes can be created, some can have coverage while others may not have coverage.  Again, non-discriminatory basis.

 

[Chaz]

Leaving aside discrimination based on race, sex, etc., there are no currently in effect nondiscrimination tests for fully insured plans.

There are potentially issues under the cafeteria plan nondiscrimination tests, which are applicable.  Although possible I suppose, I would caution is that is it not likely that "all the employees are NHCEs" because the company probably has one or more individuals who meet the definition of an "officer" under the section 125 nondiscrimination tests.  That definition does not contain an income threshold.  If these officers disproportionately receive higher company contributions, the employer might fail to satisfy the benefits portion of the cafeteria plan tests.

Note that the consequences for failing the tests result in additional taxable compensation for the HCEs.  So the company "can" have this plan design even if the tests are failed; it's just there are adverse consequences on the highly compensated.

[cathyw]

Thanks for your prompt responses.  I suspected that would be the answer, but I always seek an up to date fact check when it comes to health benefits. 

[jpod]

It would be worthwhile to check the insurance contract to make sure there aren't minimum coverage requirements that could come back to slap the acquiring employer in the face.

[leevena]

2 hours ago, Chaz said:

Leaving aside discrimination based on race, sex, etc., there are no currently in effect nondiscrimination tests for fully insured plans.

There are potentially issues under the cafeteria plan nondiscrimination tests, which are applicable.  Although possible I suppose, I would caution is that is it not likely that "all the employees are NHCEs" because the company probably has one or more individuals who meet the definition of an "officer" under the section 125 nondiscrimination tests.  That definition does not contain an income threshold.  If these officers disproportionately receive higher company contributions, the employer might fail to satisfy the benefits portion of the cafeteria plan tests.

Note that the consequences for failing the tests result in additional taxable compensation for the HCEs.  So the company "can" have this plan design even if the tests are failed; it's just there are adverse consequences on the highly compensated.

I was referring to the discrimination based on prohibited factors, such as race, age, etc.

[Luke Bailey]

cathyw I assume the employer was and after the transaction still will be under the 50 FTE Obamacare thrershhold?

Note that while there are no IRS nondiscrimination requirements for fully insured plans, sp that, putting aside ACA penalties for "applicable large employers," you can offer fully insured group coverage to just a hand-picked subset of employees, most states have special group health underwriting rules in their insurance laws pursuant to which a group policy sold in the state will require that it be offered to all of the employer's employees. For example, in Texas an employer in the 50 and under market that chooses to offer health insurance to any of its employees must make the offer to all full-time (30 or more hours per week) employees. I believe California has a similar rule. You may want to check on the requirements for your state using the state insurance commissioner website. Alternatively, the broker may know.

[Bob the Swimmer]

Agree with Luke that fully insured plans nondiscrimination requirements regs have not been issued yet by the Service but are on the books for self-insured plans.

[cathyw]

Yes, the employer is below the 50 FTE threshold before and after the acquisition.  I advised the accountant that he needs to check out the insurance company's underwriting requirements.

Thanks again to all.