Employee Benefits-IRS Requests Comments On New Nondiscrimination Requirements For Health Plans

In Notice 2010-63 (the “Notice”), the Internal Revenue Service (the “IRS”) discusses the new non discrimination requirements that apply to (nongrandfathered) insured health care plans, and requests comments on the application of these requirements.

By way of background, the Affordable Care Act provides that a covered, insured group health plan must satisfy the nondiscrimination requirements of Section 105(h)(2) of the Internal Revenue Code (the “Code”). These requirements apply in plan years starting after September 23, 2010. For this purpose, rules similar to the rules of Code section105(h)(3) (nondiscriminatory eligibility classification), Code section 105(h)(4) (nondiscriminatory benefits), and Code section 105(h)(8) (certain controlled groups) will apply, and the term “highly compensated individual” (“HCI”) has the meaning given by Code section 105(h)(5).

According to the Notice, the Affordable Care Act incorporates the substantive nondiscrimination requirements of Code section 105(h) (but not the taxes on highly compensated individuals in section 105(h)(1)), and applies them to covered insured group health plans. If the plan fails to comply with these requirements, it will be subject to: (1) the taxes, remedies, and penalties that generally apply to a plan that does not comply with the requirements of chapter 100 of the Code (generally, an excise tax of $100 per day per individual discriminated against for each day the plan does not comply with the requirements), (2) the civil remedies of part 7 of ERISA (a civil action to enjoin a noncompliant act or practice, e.g., an action to require the plan to provide a nondiscriminatory benefit, or for appropriate equitable relief), and (3) the civil penalties under title XXVII of the Public Health Service Act (civil money penalties of $100 per day per individual discriminated against for each day the plan does not comply with the requirements).

In the Notice, the IRS requests comments on what new guidance relating to the application of Code section 105(h)(2) to insured plans would be helpful.