Facing the application of new nondiscrimination rules imposed by national health care reform legislation, insured health plans have been granted a reprieve. According to IRS Notice 2011-1, the government agencies responsible for administering the health care reform law (U.S. Departments of Treasury, Labor, and Health and Human Services) have agreed to delay enforcement of the new rules until regulations address key issues and suggest that even then an additional grace period for compliance may be provided.

The Notice offers insight into the range of issues surrounding the new nondiscrimination requirements, soliciting comments on matters as significant and diverse as:

  • Which of the Internal Revenue Code tests should apply, and whether there should be an alternative method of compliance (including a safe harbor)
  • Which individuals should be regarded as highly compensated
  • Whether the tests may be applied to separate geographical locations where an employer may make a particular insured option available
  • Whether the provision of coverage to a highly compensated individual should be disregarded if it is made on an after-tax basis

Comments on the new rules are due by March 11, 2011.

Absent this guidance, the new rules would have taken effect January 1, 2011, for calendar year plans (other than grandfathered plans, which are exempt from the new nondiscrimination requirements). Accordingly, the delay in enforcement will be welcomed by many employers who provide health benefits (or certain health benefit options) through insurance, although given the effective date set forth in the statute, some employers may have already taken measures to comply with the new requirements.

If you have questions about the delay in enforcement and its impact on your organization or wish to know more about the issues that the government agencies are considering, please contact Brian M. Pinheiro at 215.864.8511 or pinheiro@ballardspahr.com, or Edward I. Leeds at 215.864.8419 or leeds@ballardspahr.com.

As the federal health care reform effort gained steam, Ballard Spahr attorneys formed an initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting employers in understanding the relevant changes and planning for the future. For more information on the firm’s Health Care Reform Initiative, please click here.


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