self-insured health plan - discriminatory to require higher employee p

[EGB]

Does it violate the non-discrimination requirements of 105(h) for a self-insured health plan to require less (or no) employee contributions for premium payments for some of its HCE key executives than are required to be paid by everyone else? Though this seems to me to potentially violate the non-discrimination rules, I have not located any authority expressly covering this. Any thoughts would be appreciated.

[papogi]

I, too, see nothing in the rules that require employee premium payments to be paid on the same schedule across the board af far as non-discrimination is concerned. It could cause some embarrassing conversations trying to eloquently justify such a policy to the rank and file, but as long as it's a documented practice, it does not seem to cause a problem legally.

[Guest rmontgomery]

Hi!

According to the reseach I've done on HIPAA and discrimination in Premiums or Contributions - differentiation of coverage or contribution rates appear to be permissible under HIPAA's nondiscrimination rules, as long as there is a bona fide reason for the difference. Differentiations between full- and part-time employment, coverage limits for exempt or non-exempt, or collectivley bargained or non-union appear to be acceptable. Hope this helps!

[Ron Snyder]

Nothing in the Code or regs would be violated as long as the basis for doing so was legal, ie, in the plan document or in some rating schedule permitted under the plan.

Papogi talks about trying to explain the practice to the rank and file: it may actually have to be included in the SPD.

Monty is right as far as he/she goes. The regs. specifically preclude employer contributions as a percentage of salary, for example. But then, ironically, in describing how to perform the non-discrimination test they describe comparing the BHCE/SHCE to the BNHCE/SNHCE (where B=Benefits or Employer premiums and S=Compensation or salaries).

The penalty for disciminating under these provisions: the excess for the HCEs is imputed to them as current income and included on their W-2s!

My recommendation: Go for it!

[Kirk Maldonado]

As somewhat of an aside, if the employee contributions are run through a cafeteria plan, then the cafeteria plan ends up discriminating against highly compensated employees!

That occurs because the contributions by the non-highly compensated employees (to the cafeteria plan) are a greater percentage of compensation than the contributions by the other employees.

[SLuskin]

In a Cafeteria Plan, it is ok to discriminate against the key or HCE. Just not the other way.

As an aside, I thought the self-funded plans did have discrimination testing, and that if the plan is tilted in favor of the HCEs, then the contributions made on their behalf become taxable income to them.

I am not aware of any such discrimination issues in fully insured plans.

[Ron Snyder]

SLuskin: As an aside, I thought the self-funded plans did have discrimination testing, and that if the plan is tilted in favor of the HCEs, then the contributions made on their behalf become taxable income to them.

VG: You are correct.

KMaldonado: As somewhat of an aside, if the employee contributions are run through a cafeteria plan, then the cafeteria plan ends up discriminating against highly compensated employees!

VG: Following up on your thought, could the employer then make cafeteria plan contributions on behalf of HCEs to bring them up to the level of contributions for non-HCEs?