If you’re a top gun at your company, you may have a ticking time bomb in your array of health benefits that could go off with a jolt come January.
That’s because any employer that offers “richer” health benefits to certain employees faces a penalty for doing so if those packages aren’t purged of what’s deemed discriminatory coverage by the time the Patient Protection and Affordable Care Act takes full effect.
A lesser-noted provision in the law is designed to discourage employers from offering one plan to the bulk of employees and more attractive plans to “highly compensated” employees. In other words, if you as an employer wishes to have a two-tiered, or multi-tiered, health benefits system in place, it’s going to cost you even more.
This provision will make it difficult after Jan. 1 for employers to use enriched health coverage plans as a hiring or retention incentive for key employees. Often seen as a way to sweeten an offering for a management prospect, these plans will now have to be carefully considered given the penalties involved.
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The rule applies to any employers who buy benefits packages from insurers. Those who self-fund their coverage already faced similar IRS rules, though the penalties there merely impose a tax on employees who receive a higher level of benefits.
Although the provision hasn't drawn as much attention as other parts of the PPACA, the Small Business Coalition for Affordable Healthcare has lobbied against it, telling the IRS the penalties "fall especially hard on the small business population."
The PPACA sets out some guidelines for what will be considered discriminatory health coverage. A “highly compensated” individual, for starters, is described as any shareholder who owns more than 10 percent of a company's shares, someone who is among the top five highest-paid employees in a corporation, or someone whose compensation puts them in the top quarter of employees.
Andy Anderson, a partner at law firm Morgan, Lewis & Bockius in Chicago, said that prior attempts to penalize employers who offered better coverage to select employees based fines on the number of people getting the higher level coverage.
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Noncompliance under the PPACA considers the number of people who are discriminated against, which, he said, “is the exact opposite of how nondiscrimination rules have been historically considered.”
Regulators have yet to state clearly exactly when compliance will be required, but for most businesses, it’s probably best to think in terms of Jan. 1, given the costs involved for noncompliance.
According to benefits consultant Mercer, there are no national statistics on how many employer plans might be considered discriminatory under the law.
Employers offering high-priced benefit plans to their workers also are subject to the law's “Cadillac” tax.
According to the Medical Plan Trends Report, produced by benefit-management firm HighRoads and the member-advisory firm CEB, about 16 percent of plans are on track to incur the tax, charged on plans with annual premiums exceeding $10,200 for individuals or $27,500 for a family.
The 40 percent non-deductible tax takes effect in 2018 and is designed to discourage plans from including design features that promote over- or unnecessary use of medical care, such as low or non-existent deductibles and co-pays -- some of the features commonly seen in benefit packages available only to those in the C-suite.