The Internal Revenue Service (IRS) is asking how it ought to go about applying rules discouraging discrimination by self-insured employer health plans to insured group plans.
The IRS has raised the question in IRS Notice 2010-63, which addresses provisions prohibiting discrimination in favor of highly compensated individuals in insured group health plans.
The Affordable Care Act, the federal legislative package that includes the Patient Protection and Affordable Care Act (PPACA), has changed the provisions in the Public Health Service Act and put some of the Public Health Service Act provisions into the Internal Revenue Code (IRC) and the Employee Retirement Income Security Act (ERISA).
Starting in plan years that begin on or after Thursday, Section 2716 of the Public Health Service Act will impose an excise tax on group health plans that discriminate in favor of “highly compensated individuals.”
Since 1981, IRC Section 105(h) has taken the employer-sponsored health coverage exclusion away from highly compensated individuals who are in employer self-insured plans and get what the code defines as excess reimbursement.
Public Health Service Act Section 2716 contains the same nondiscrimination requirements, but , instead of imposing the Internal Revenue Code Section 105(h) tax penalties, Section 2716 exposes an insured group plan that violates the requirements to civil lawsuits, and to the threat of fines amounting to $100 per day per individual who is the target of discrimination.
The IRS and its parent, the Treasury Department, are considering issuing guidance on how to extend the type of Internal Revenue Code penalties against highly compensated individuals who benefit from health plan discrimination to insured group health plans.
“The Department of the Treasury and the IRS request comments on what additional guidance relating to the application of Section 105(h) (2) would be helpful with respect to insured group health plans,” IRS officials write in the notice.
Comments on the proposal are due Nov. 4.
The U.S. Department of Labor and the U.S. Department of Health and Human Services have reviewed the notice and told the IRS that they agree with it, IRS officials say.