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DANGER, Will Robinson, DANGER!
Group Health Plans to Become Subject to Nondiscrimination Rules

The Patient Protection and Affordable Care Act enacted in March 2010 has several provisions that come into play for plan years starting after September 23, 2010 (i.e., for calendar year plans the effective date is January 1, 2011). Please note that your benefit plan calendar year may not actually be the same as your income tax year. It is not unusual for plan years to have a fiscal year end; please consult with your benefit provider if you are not sure of the plan year.

One provision that may catch many small businesses by surprise is the new requirement that group health insurance plans be subject to the same nondiscrimination rules that self-insured health plans are guided by. Prior law did NOT require that group health plans have the same benefit for more highly compensated employees and owners as compared to all other employees. Therefore, it was possible for an owner to have a group health plan that covered his family while the remaining employees were only provided with self-coverage. It was also possible for an owner to maintain a group plan with a $500 deductible while all other employees had a $2,000 deductible (even though in practice, this different deductible was difficult, if not impossible, for a small business to purchase).

What may be a bigger surprise are the costs of noncompliance by the small business person. Self-insured plans may just lose tax exemption of amounts paid for owners and highly compensated employees for medical care to the extent of noncompliance. Unfortunately, the cost of noncompliance for group health plans could be an excise tax of $100 per day per person along with potential civil action to enforce compliance or for appropriate equitable relief. If you have 50 employees, that could result in a daily fine of $5,000. Welcome to health care reform!

While many of the provisions of the Health Care Bill may not take effect for a few more years, there were some provisions that became effective this year. The above is one of those provisions.

For more information, contact Michael Calahan at 312-980-2996, Brian Whitlock at 312-980-2941, or your Blackman Kallick representative. Also, for continuing online discussion of tax topics, please see Brian’s blog at http://blog.untaxinglyyours.com.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.