Client Alert from the Labor and Employment Group - January 2011
IRS Delays Effective Date of
Nondiscrimination Rules for
Insured Group Health Plans
By Jeremy J. Sharp
On December 22, 2010, the IRS issued IRS Notice 2011-1, delaying the effective date of nondiscrimination rules for insured group health plans set forth under the Patient Protection and Affordable Care Act ("PPACA") and Health Care Education and Reconciliation Act of 2010 ("HCERA") - collectively, the "2010 Health Care Reform Statutes."
Under the 2010 Health Care Reform Statutes, insured group health plans (other than grandfathered plans) are required to satisfy the provisions of Internal Revenue Code ("Code") Section 105(h)(2), which heretofore only applied to self-funded group health plans. The net effect of this expansion of the scope of Code Section 105(h)(2) is that insured group health plans cannot discriminate in favor of highly-compensated employees with respect to eligibility or benefits. The consequence for non-compliance with the newly expanded Code Section 105(h)(2) is a significant excise tax, and the new rules were scheduled to apply to most plans for the 2011 plan year. This change in the law will significantly curtail executive medical obligations, many of which are based upon existing contractual commitments by employers as a method of compensating their top talent.
The issuance of IRS Notice 2011-1 assuages any concerns with respect to paying the applicable excise tax for 2011, given that the effective date has been delayed due to the fact that necessary regulations regarding the new rules have not yet been issued, and Notice 2011-1 provides that enforcement will not begin until the next plan year beginning a specified period following the issuance of such guidance. This is welcome news for employers that maintain executive medical arrangements.
Link to IRS Notice 2011-1: http://www.irs.gov/pub/irs-drop/n-11-01.pdf
The information in this Client Alert is a summary of often complex legal issues and may not cover all of the "fine points" of a specific situation or court jurisdiction. Accordingly, it is not intended to be legal advice, which should always be obtained in consultation with an attorney. The lawyers in Walter & Haverfield's Labor and Employment Law Group will be pleased to assist with any questions about this new development in the law.
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