Over my 20-plus years in employee benefits employers have asked one question more than any other: “Can I provide better benefits for some employees?” For example, some employers consider implementing the following plan designs:
- Different levels of benefits for groups of employees such as owners, managers and all other employees; and/or
- Varied employer contribution rates based on employee group such as 100% for owners, 80% for managers and 70% for all other employees
In general, employers may treat employees differently, as long as they are not violating federal rules that prohibit discrim- ination, however, the nondiscrimination requirements for fully insured health plans have been delayed indefinitely.
The Affordable Care Act (ACA) includes a requirement that non-grandfathered, fully insured group health plans follow many of the same nondiscrimination rules that have historically applied only to self-insured health plans under Code Section 105(h). These nondiscrimination rules were set to be effective for fully insured health plans for plan years beginning on or after Sept. 23, 2010. However, they have been delayed indefinitely, pending the issuance of regulations from the Internal Revenue Service (IRS).
Health plans cannot however, discriminate in favor of highly compensated employees with respect to eligibility for benefits. An employer cannot provide health insurance to only a select group of employees. If you offer health insurance, you have to offer it to all employees that work 30 hours or more a week.
In general, a health plan will not have problems passing any applicable nondiscrimination test when the employer treats all of its employees the same for purposes of health plan coverage (for example, all employees are eligible for the health plan, and the plan’s eligibility rules and benefits options are the same for all employees). Examples of plan designs that may cause prob- lems with nondiscrimination testing include:
- Only certain groups of employees are eligible to participate in the health plan (for example, only salaried or management employees);
- The health plan has different employment requirements for plan eligibility (for example, waiting periods and entry dates)
for different employee groups;
- The employer maintains separate health plans for different
groups of employees, PPO plans for management and only HMO plans for all other employees.
Because fully insured health plans are not subject to the Sec- tion 105(h) nondiscrimination rules, employers generally have more flexibility to treat employees differently under their fully insured group health plans.
Insurance carriers do not regulate what employers do in these areas of offering health insurance. For example, employers con- tributions may be a flat dollar amount or a percentage of a plan according to carrier underwriting rules even though a flat dollar amount may cause an employee discrimination issue based on labor laws.
Under the ACA health insurance, rates are age-based and
in California that is for employers with 2-100 employees. An employer that contributes a flat dollar amount may increase their risk of an age discrimination lawsuit because an employee in their 20’s can buy much better coverage than an employee in their 50’s.
We always recommend a percentage of a health insurance plan since it does not discriminate based on age.
Your health insurance agent or broker should be educating you as to what the health plan rules are and make sure you are in compliance with them as well as the ACA required employee benefit notices. If you are not receiving compliance help, you are at risk, give me a call.
Thanks to Zywave for additional information.