The Internal Revenue Service (IRS) has issued IRS Notice 2011-1 delaying the enforcement of the nondiscrimination provisions of the Patient Protection and Affordable Care Act (PPACA) against insured group health plans until the IRS, Department of Labor (DOL), and Department of Health and Human Services (HHS) are able to publish guidance regarding the new rules. Section 10101(d) of PPACA applies the nondiscrimination provisions found at Section 105 of the Internal Revenue Code, which already are applicable to self-insured plans, to group health plans. These provisions prevent plans from discriminating with regard to either eligibility or benefits in favor of “highly compensated individuals” (generally defined to include the five highest paid officers, shareholders who own more than 10% in value of the stock of the employer, and the highest paid 25% of all employees, with some exceptions). Once the rules go into effect, insured group health plans that do not comply with the nondiscrimination provisions may be subject to an excise tax, a civil action to enjoin non-compliant practices, or, in the case of non-federal governmental group health plans, civil monetary penalties.
The IRS has delayed enforcement of the nondiscrimination rules because of concerns over the lack of guidance regarding how the rules will apply to group health plans. The statutory provision provides only that rules “similar to” those rules that apply to self-insured plans will apply to group health plans. The IRS, in conjunction with the DOL and HHS, determined that compliance would not be required until additional guidance was issued. As part of the delay, the IRS has solicited comments regarding several issues, including:
- The definition of “benefits;”
- Application of the nondiscrimination rules to group health plans following establishment of the state health insurance exchanges in 2014 along with other provisions of PPACA;
- Whether the guidance should provide for “safe harbor” plan designs;
- Potential transition rules following a merger, acquisition or other corporate transaction; and
- Application of sanctions for noncompliance.
Comments must be submitted to the IRS by March 11, 2011 and will be shared with the DOL and HHS. IRS Notice 2011-1 is available by clicking here.