PPACA Extends Nondiscrimination Rules to Insured Benefits – Part III

Consequences of Failure to be Nondiscriminatory The consequences for failing to satisfy the 105(h) Nondiscrimination Tests are significantly different for self-insured health plans and insured health plans. The provisions applicable to self-insured health plans are located in the income tax section of the Code. Therefore, when a self-insured plan fails to satisfy the Nondiscrimination Tests of 105(h), the only consequence is a loss of tax deductibility of any benefits provided to HCIs. Accordingly, the HCIs participating in the discriminatory plan are then taxed on the value of any coverage provided under the plan. The consequences for an insured health plan failing to satisfy the Nondiscrimination Tests of 105(h) are more severe. The consequences applicable to insured health plans are located in the excise tax provisions of the Code. An employer sponsoring an insured plan failing to satisfy the Nondiscrimination Tests of 105(h) is subject to civil penalties of $100 per day per affected employee. This imposed penalty will have a minimum of $2,500 per employer or $15,000 for failures to be nondiscriminatory that are not de minimis. Affected employees as well as the Department of Labor will have the right to sue under ERISAs civil enforcement provisions to enforce violations of these nondiscrimination rules. —Christopher L. McLean