Marc Furman, Esq. Mark J. Leavy, Esq.
On March 23, 2010, President Barack Obama signed the comprehensive health care reform law (Reform). It is an understatement to say that the Reform bombards employers with information - and fair to say that the Reform's many new obligations present a potential compliance nightmare for them. More importantly, employers are faced with the challenge of effectively managing their business in light of the “bigger picture” financial and tax implications of the Reform.
This situation is further complicated because different aspects of the Reform become effective at different times over the next several years. To make things even more confusing, interpretations keep changing and the Reform remains an ever moving target. For example, the Reform required employers to report health care costs on all 2011 W-2 forms - but the IRS decided in October 2010 that this would not go into effect until the 2012 tax year.
There are two very recent - and much more important - developments that employers should be aware of. These are the changes to the “grandfathering” and "non-discrimination" rules. A critical aspect of the Reform was the grandfathering rules. Under these rules, certain existing employer-sponsored health plans could enjoy either a delayed effective date for compliance with, or a total exception from, certain (but not all) of the insurance reforms and new coverage mandates. The grandfathered status can be lost if the employer significantly changes the deductibles, co-payments or benefits offered, or changes carriers.
On November 15, 2010, the Department of Health and Human Services (HHS) announced newly revised grandfathering rules. This revision is a critical issue for employers because whether or not your plan is grandfathered will determine the extent of your compliance obligations. An important revision was issued just a few days after the revised grandfathering rules to clarify how the rules would apply to the situation where an employer changes carriers (i.e., comparison shops the marketplace for a better deal), but keeps the same levels of coverage in place.
Another equally important revision involves the non-discrimination rules. The Reform subjected plans to non-discrimination rules under IRS Code Section 105(h). In a nutshell, plans cannot “discriminate” in favor of highly compensated employees (HCEs) by giving HCEs extra or excessive benefits. However, grandfathered plans do not have to comply with the non-discrimination rules.
It is critical that employers fully understand that changes in their benefit plans could result in the loss of grandfathered status. This would trigger compliance with coverage mandates and non-discrimination rules that would otherwise not have applied.
As you can see, understanding the grandfathering and non-discrimination rules are essential for employers to be able to work with their benefits plans and avoid potentially costly missteps. HHS continues to field many questions, and revise and clarify the rules governing the Reform.
The Labor & Employment Group at Cohen Seglias is continually monitoring the many developments in this ever-unfolding saga, and will provide you with any significant updates. Should you have any questions or concerns about how the latest changes may affect your company, please do not hesitate to contact the authors of this alert.
Marc Furman is a Partner at Cohen Seglias and Chair of the Labor & Employment Group. He can be reached at (215) 564-1700 or firstname.lastname@example.org.
Mark J. Leavy is an Associate in the firm's Labor & Employment Group. He can be reached at (215) 564-1700 or email@example.com.