In the past, an insured group health plan could provide non-taxable benefits to executives and other highly compensated individuals even if the plan discriminated in favor of those individuals with regard to eligibility to participate or benefits provided. If, however, self-funded group health plans discriminated in favor of highly compensated employees, the benefits for the highly compensated individuals would be subject to taxation under Internal Revenue Code 105(h). The Affordable Care Act (ACA) has now subjected insured group health plans to similar rules as those contained within Internal Revenue Code 105(h) if they discriminate in favor of these persons, except for insured grandfathered plans, for as long as they remain grandfathered.
Unless an insured plan is grandfathered under ACA, it will need to satisfy rules similar to those that already apply to self-funded plans relating to prohibitions on discriminating in favor of highly compensated individuals. Those rules will be outlined in future regulatory guidance and will go into effect sometime after their release.
Under ACA, it appears that an employer that sponsors an insured plan that discriminates in favor of highly compensated individuals is subject at least to a $100 per day penalty multiplied by the number of those individuals “discriminated against.” If a plan sponsor thinks its plan may be discriminatory, we urge the plan sponsor to monitor the rulemaking process and contact its tax counsel for further guidance. If, after discussing, plan changes need to be made, please contact a broker or Aetna representative.
Aetna does not conduct discrimination testing and is not responsible for an employer’s compliance with this ACA requirement. While there are many unanswered questions about this rule, we are providing the additional information below for your convenience.
Questions and answers