Health Care Reform Update:  Delay of Nondiscrimination Rules for Insured Health Plans and New Frequently Asked Questions

On Wednesday of last week, the Internal Revenue Service (IRS) issued a statement delaying compliance with the provisions of the Patient Protection and Affordable Care Act that prohibit insured group health plans from discriminating in favor of highly compensated individuals.  The delay of compliance also means that penalties for noncompliance will not be imposed until after regulations or further guidance is issued.

Self-funded health plans are already prohibited from discrimination in favor of highly compensated individuals in terms of eligibility to participate or benefits provided under Section 105(h) of the Code.  The Affordable Care Act requires that certain insured group health plans also comply with 'similar' rules.  It is the word 'similar' in the Act that has raised so many additional questions. 

The IRS has opened a second comment period through March 11, 2010, to solicit feedback on thirteen issues outlined from the original comment period.  Those issues include how benefits are defined, a possible safe harbor plan design, the application of the provision under the exchange model, the impact of geography, and the applicability to multiple employer plans among other things.        

The Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services jointly determined additional guidance is essential in order for group health plans to comply and that plans must be given time to make any necessary changes based on that guidance.  Once guidance is issued, it will most likely apply for plan years after that date or a specific future date.  Before compliance is required, group health plan sponsors will not be required to file IRS Form 8928 with respect to excise taxes related to noncompliance with nondiscrimination rules.