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Sponsors of Fully Insured Health Care Plans Get Early Christmas Gift as Treasury Postpones Testing Rules

Employers that sponsor fully insured group health care plans, including plans that cover only executives, got an early Christmas present from the federal government.

On December 22, 2010, three federal agencies issued a joint notice (Notice 2011-1) that the nondiscrimination testing rules for fully insured group health plans, which were scheduled to become effective for new and non-grandfathered plans six months after the enactment of the Patient Protection and Affordable Care Act (Affordable Care Act) (P.L. 111-148), will not go into effect until after the issuance of regulations or other administrative guidance. The guidance postpones imminent implementation of testing rules that were expected to result in the termination or restructuring of many executive-only medical plans until at least 2012 and possibly later.

Background
On March 23, 2010, the Affordable Care Act added Section 2716 to the Public Health Service Act (PHSA). Section 2716 provides that fully insured group health plans that do not maintain grandfather status must satisfy nondiscrimination requirements similar to the rules applicable to self-insured plans in Section 105(h) of the Internal Revenue Code (the Code). The new requirements were scheduled to become effective the first plan year beginning six months after the enactment of the Affordable Care Act, or January 1, 2011 for calendar year plans.

Nondiscrimination Requirements Do Not Apply to Fully Insured Group Health Plans Until Further Notice
Notice 2011-1, to be published in the Federal Register on January 10, 2011, provides that the nondiscrimination requirements that apply to self-insured group health plans under Section 105(h) of the Code will not apply to fully insured group health plans until after regulations or other administrative guidance is issued by the Treasury Department. The Notice delays the application of the new requirements until at least January 1, 2012, and possibly much later. Until further guidance, therefore, employers with fully insured plans do not have to comply with nondiscrimination requirements.

Request for Comments
Through Notice 2010-63, issued on September 20, 2010, the Treasury previously solicited comments on the extension of the nondiscrimination requirements that apply to self-insured group health plans to fully insured plans. In connection with this request, Aon Hewitt submitted comments. In Notice 2011-1, the Treasury acknowledges that the comments provided raise a number of issues regarding the application of nondiscrimination requirements to fully insured plans and requests further comments on a number of issues that will impact how the rules will apply in the future. All comments must be submitted by March 11, 2011.

More Information
The full text of Notice 2011-1 is available at: http://www.irs.gov/pub/irs-drop/n-11-01.pdf" target="_blank