The Internal Revenue Service on Dec. 22, 2010, announced in Notice 2011-1 that compliance with the Patient Protection and Affordable Care Act’s nondiscrimination rules for health insurance plans will be delayed until regulations or other administrative guidance has been issued. The IRS indicated that the guidance will not apply until plan years beginning a specified period after guidance is issued. The U.S. Department of Labor and U.S. Department of Health and Human Services have reviewed the notice and agreed with it.
The nondiscrimination requirement boils down to two mandates. First, a new, fully funded health plan cannot discriminate in favor of highly compensated individuals as to eligibility to participate; adherence to the requirement is determined by a numerical test. Second, a plan cannot discriminate in favor of participants who are highly compensated individuals as to benefits that are provided.
The IRS noted that regulatory guidance is essential to the operation of the nondiscrimination statutory provisions. The nondiscrimination requirements already apply to self-insured plans. Guidance will have to specify to what extent insured plans are subject to the same statutory provisions that apply to self-insured plans, the IRS noted.
Guidance must take into consideration the operation of state health insurance exchanges and individual and plan sponsor requirements that take effect after 2013, the IRS added.
Comments Sought
In the notice, the IRS sought comments on various issues, including:
The application of the nondiscrimination provisions to insured group health plans beginning in 2014 when the health insurance exchanges become operational and the employer responsibility provisions, the premium tax credit and the individual responsibility provisions are effective.
The suggestion in previous comments that the nondiscrimination standards should be applied separately to employers sponsoring insured group health plans in distinct geographic locations, and whether application of the standards on a geographic basis should be permissive or mandatory.
The suggestion in previous comments that the guidance should provide for “safe harbor” plan designs.
The application of the nondiscrimination rules to multiple employer plans.
The treatment of employees who waive employer coverage voluntarily in favor of other coverage.
Potential transition rules following a merger, acquisition or other corporate transaction.
The application of sanctions for noncompliance with the nondiscrimination requirements.
Comments are due March 11, 2011. They should be submitted to Internal Revenue Service, CC:PA:LPD:RU (Notice 2011-1), Room 5203, PO Box 7604, Ben Franklin Station, Washington, DC 20224. Submissions may be sent electronically to Notice.Comments@irscounsel.treas.gov, and should include Notice 2011-1 in the subject line.
