PPACA Series: Non-Discrimination Rules under PPACA
Healthcare Reform includes several provisions that apply to all groups, regardless of their size. One of the most important provisions for the food service industry is the new non-discrimination rules. Included in the PPACA requirements was the expansion of existing non-discrimination rules to small, fully-insured groups. These rules will have limited impact in some industries, but will have a significant impact on any business that has a plan where certain highly compensated full-time employees are offered group health coverage when other employees are not offered access to the plan. It will be very important for small, insured group plans to understand these rules and adopt the necessary changes prior to 1/1/2014.
The history of these non-discrimination rules is unique under PPACA. Unlike most of PPACA, these non-discrimination rules are not new. Instead of writing completely new rules, the drafters of PPACA simply referenced the long-standing rules under IRS Section 105(h). This section of the Code has been in place for years and was applicable to large, self-funded plans. Expanding the scope of these existing regulations had the potential advantage of standardizing rules already in place and eliminating the application of two sets of rules for an employer that would change size or funding arrangement. Unfortunately even thought this section had been in force for years, the IRS had not fully drafted all the Section 105(h) regulations and they had been “lax” in its enforcement with self-funded groups. As a result, we are still without final regulations for small employers and are left to work with the limited direction we currently have from the IRS. Since these rules appear to be applicable to all groups for 1/1/2014 we are anticipating more direction very shortly.
Based on the existing code, however we can anticipate most of the key provisions of the regulations as they will apply to food service employers. The stated purpose of IRS Section 105(h) is to prevent discrimination in favor of the highly compensated employees under a group health plan offering. What this means in the real world is that a plan that is currently only offered to managers, shift managers, store managers, etc…. (i.e. a carve out plan) will likely be deemed as discriminatory. As you know, this approach is common in the food service industry and may require a change in your current eligibility rules. Further, the offering of separate waiting periods (such as 30 days for managers and 90 days for hourly staff) must be compliant. Offering richer plans for managers and or lower premium contributions would also be discriminatory. Other more subtle forms of discrimination such as a seniority based contribution may in fact be discriminatory if it results in eligibility where mostly/only managers effectively meet the requirement. We anticipate some flexibility for multi-location employers or those with significantly different workforces such as a restaurant owner that also may own a mirco-brewery or software firm, but these specific regulations are yet to be published.
While these requirements simple, they may present a challenge for some employers. The tradition in some industries is to limit eligibility to the management staff not to limit participation in the health plan but instead to reduce the HR staff overhead of dealing with the higher turn-over associated with the hourly employees. Another problem may be the existing “participation” requirment of some insurance carriers. Many plans have limited their eligibility to managers as a way of meeting the minimum participation percentage of some health carriers (usually 50-70% of all eligible employees). Some employers will have difficulty meeting this requirement if they are forced to offer plans to significant number of hourly employees. Since the participation requirement is established by your carrier, not PPACA, we hope that carriers will waive or lower this requirement during the phase in periods of the regulations.
As you can see the simple non-discrimination rules of IRS Section 105(h) are really more complex in application than may appear at first glance. The penalties for non-compliance are extremely severe, even more so than the Pay or Play penalties. Each employer should make sure that his plan is clearly compliant with these regulations. If you need assitance with a review of your plan please let us know, we will be glad to assist.
"Want to learn more? PPACA is a complex law and will affect each employer differently. McInnes Group provides this blog series as a sample of various strategies that may work for some employers. We encourage you to contact Dennis at email@example.com or at their website at www.mcinnesgroup.com to get specific advice to help you develop a customized strategy for compliance."
Previous posts in the PPACA series:
The Three Strategies for Healthcare Reform
3 Steps to Managing your Workforce
Ten new words you’ll need to know to understand healthcare reform
Understanding the Patient Protection and Affordable Care Act