Solving the Benefits Puzzle

At Total Benefit Solutions we often get e-mailed questions from our clients, friends and business partners. Some of them we like to post because they are asked so often. This question is one question that comes up a lot.


Q- I represent an S Corp. There are 4 employees. 2 are the sole-shareholder and  his wife. Then there are 2 unrelated employees. All work 30 hours or more per week. The sole shareholder and wife are covered by an employer health insurance plan. The company pays 100% of the premiums. Health insurance  is not offered to the other 2 employees. Is this still permissible?

 

A-No.

In the past, an insured group health plan could provide non-taxable benefits to executives and other highly compensated individuals even if the plan discriminated in favor of those individuals with regard to eligibility to participate or benefits provided. If, however, self-funded group health plans discriminated in favor of highly compensated employees, the benefits for the highly compensated individuals would be subject to taxation under Internal Revenue Code 105(h). The Affordable Care Act (ACA) has now subjected insured group health plans to similar rules as those contained within Internal Revenue Code 105(h) if they discriminate in favor of these persons, except for insured grandfathered plans, for as long as they remain grandfathered. Unless an insured plan is grandfathered under ACA, it will need to satisfy rules similar to those that already apply to self-funded plans relating to prohibitions on discriminating in favor of highly compensated individuals. Those rules will be outlined in future regulatory guidance and will go into effect sometime after their release. Under ACA, it appears that an employer that sponsors an insured plan that discriminates in favor of highly compensated individuals is subject at least to a $100 per day penalty multiplied by the number of those individuals “discriminated against.”  If a plan sponsor thinks its plan may be discriminatory, we urge the plan sponsor to monitor the rulemaking process and contact its tax counsel for further guidance.

 

Source: Aetna “reform explained” http://www.aetna.com/health-reform-connection/reform-explained/non-discrimination-executive-medical.html

 

More questions about reform? Please visit our health care reform page or enter your search term in the search box at the top of our site. Feel free to contact your Total Benefit Solutions Account Representative if you have any further comments or concerns at (215)355-2121.