Health Plan Rules—Treating Employees Differently

     Some employers may want to be selective and treat employees differently for purposes of group health plan benefits. For example, employers may consider implementing the following plan designs:

  • A health plan “carve-out” that insures only select groups of employees (for example, a management carve-out);
  • Different levels of benefits for groups of employees; or
  • Varied employer contribution rates based on employee group.

     In general, employers may treat employees differently, as long as they are not violating federal rules that prohibit discrimination in favor of highly compensated employees. These rules currently apply to self-insured health plans and arrangements that allow employees to pay their premiums on a pre-tax basis. The nondiscrimination.

     Employers should also confirm that any health plan rules do not violate other federal laws that prohibit discrimination. In addition, employers with insured plans should confirm that carve-out designs comply with any minimum participation rules imposed by the carrier.

Health Plan Designs

These types of plan designs may be discriminatory:

  • Only a select group of employees is eligible to participate;
  • There are different benefits available to a select group of employees; or
  • An employer contributes more of the cost of coverage for a select group of employees.

Nondiscrimination Rules

  • Fully insured health plans are not subject to nondiscrimination testing.
  • An employer’s Section 125 plan must satisfy three different nondiscrimination tests to avoid adverse tax consequences.
  • Self-insured health plans cannot discriminate in favor of highly compensated employees with respect to eligibility for benefits

LINKS AND RESOURCES

  • Fully insured health plans: No rules have been issued
  • Cafeteria plans: IRS proposed rules from 2007
  • Self-insured health plans: IRS rules under Code Section 105(h)

Download the full PDF here – Health Plan Rules—Treating Employees Differently 

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