IRS Seeks Feedback on Health Care Reform’s Nondisrimination Rules

The IRS has requested comments on the new requirement that group health plans do not discriminate in favor of highly compensated employees. This treatment is mandated by the health care reform package (the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act).

September 23, 2010 was the six-month anniversary of enactment of health care reform and triggers a number of new nondiscrimination requirements. For example, for plan years beginning on or after September 23, 2010, new policies must cover evidence-based preventive services, including screenings and vaccinations, at no cost to the taxpayer. September 23 was also the effective date for young adults under age 26 generally to be insured under a parent’s insurance if the policy allows for dependent coverage.

Background. Under the health care reform package, group health plans must satisfy Code Sec. 105(h)(2), which prohibits discrimination in favor of highly compensated individuals regarding eligibility to participate and benefits. For purposes of health care reform, the definition of highly compensated individual has the same meaning as in Code Sec. 105(h)(5). Health care reform also incorporates the substantive nondiscrimination requirements of Code Sec. 105(h)(5). A group health plan that fails to comply with the nondiscrimination requirements is generally subject to penalties.

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