Holiday Gift from the IRS: Delayed Deadline for Insured Group Health Plan Nondiscrimination Rules
In IRS Notice 2011-1, issued Dec. 22, 2010, the Internal Revenue Service suspended the need for insured group health plans to currently comply with new nondiscrimination requirements, pending the issuance of further regulatory guidance.
Tax changes intended for nongrandfathered plans
As part of national health care reform, the Patient Protection and Affordable Care Act added Section 9815(a)(1) to the Tax Code, thus incorporating the provisions of Section 2716 of the Public Health Services Act.
The effect of these changes is that for plan years starting on or after Sept. 23, 2010, all nongrandfathered insured group health plans must satisfy nondiscrimination rules “similar” to the rules for self-insured plans under Tax Code Section 105(h). However, the IRS has not yet clarified what requirements are “similar” to the rules of Section 105(h).
Notice 2011-1: A temporary reprieve
Acknowledging this lack of needed clarification, the IRS announced in Notice 2011-1 that insured group health plans will not be subject to any sanctions for failure to comply with the new nondiscrimination rules until after the government has issued explanatory guidance. Notice 2011-1 also states that the agencies involved (the Treasury Department, Health and Human Services, and the Department of Labor) anticipate the expected “guidance will not apply until plan years beginning a specified period after issuance.” Hopefully, the transition period will be reasonable.
In the meantime, insured plans are apparently free to continue practices that would otherwise likely be discriminatory under the new rules. For example, historically some employers provided a greater group health insurance premium subsidy for highly paid employees. This practice is arguably discriminatory under the new rules, and the IRS is seeking comment on whether that practice should be allowed under the new rules.
Stay tuned for future guidance. Also, remember that this deferred compliance only applies to insured group health plans; self-insured group health plans must continue to satisfy the nondiscrimination rules of Tax Code Section 105(h).