Making Plans Where Rules Don’t Exist

It’s hard enough to run a business when it comes to customers and competition. An owner usually focuses his or her attention on activities that generate income for the company so it can be profitable and stay in business.

Unfortunately, an owner also has to contend with government rules and regulations that dictate various actions without regard to whether the business is doing well, what industry it’s in, or any other factors.

How do you make plans when these rules and regulations aren’t even fleshed out?

That’s the challenge for businesses in 2014 that want to offer different health plans to employees (e.g., one plan for minimum wagers and an executive health plan). Prior to this year, as long as the plans were insured (paid with premiums to an insurance company) as opposed to self-insured health plans, the coverage was deemed to be nondiscriminatory even though different levels of employees enjoyed different types of coverage.

Now, under the Affordable Care Act (Obamacare), a different definition of nondiscrimination comes into play. Essentially, insured plans (other than those grandfathered in) must now meet the same rules applied to self-insured health plans. However, exactly what this new definition really means remains unclear; there are no guidelines yet.

What we know.
Generally, plans cannot favor highly-compensated employees, which include:

  • A more-than-10% shareholder
  • The 5 highest-paid employees
  • The top 25% of employees (based on compensation)

Previously, the IRS provided some guidance with respect to the timing of the new rule (which is questionable in view of the postponement of the employer mandate from 2014 to 2015).

What we don’t know. In testing for discrimination, will you count employees who’ve opted to enroll in coverage through the federal or a state exchange (in order to receive a government subsidy for premiums)? Will the same complex rules for factoring in part-time employees that already apply to self-insured plans be applied to insured plans?

Penalties. Even though the rules aren’t clear, the cost of being wrong is. The penalty for discriminating in health coverage is $100 per day (likely to be applied for each non-highly compensated employee who is being discriminated against), up to a maximum penalty of $500,000 (unless the violation is corrected within 30 days).

It’s not entirely clear whether the penalty could be applied to small employers (those with 50 or fewer full-time or full-time equivalent employees) that opt to provide coverage for their staff. Fortunately, the government has indicated that no penalties will be imposed before guidance is issued.

Bottom line: It’s commonly accepted wisdom that there are already too many government regulations. However, when rules loom large but guidance on what they mean or how to apply them is missing, there’s a serious problem.

Businesses want to know what the rules are so they can make health care choices for 2015, when the employer mandate goes into effect. But the guidance may not be available anytime soon. More to come…

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