On December 22, 2010, the Internal Revenue Service (“IRS”) issued IRS Notice 2011-1 (the “Notice”) delaying the application of the nondiscrimination rules under Section 105(h) of the Internal Revenue Code (the “Code”) to fully-insured group health plans.
Background on Application of Nondiscrimination Rules to Fully-Insured Plans
As background, under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (together, the “Health Care Reform Legislation”), the nondiscrimination rules under Code Section 105(h) became applicable to non-grandfathered fully-insured group health plans effective for plan years beginning on or after September 23, 2010 – January 1, 2011 for calendar year plans. The Code Section 105(h) nondiscrimination rules were previously only applicable to self-insured health plans. Now, under the Health Care Reform Legislation, fully-insured group health plans are also required to comply with the Code Section 105(h) nondiscrimination rules.
IRS Notice 2011-1 Delays Application of Nondiscrimination Rules to Fully-Insured Plans
In the Notice, the IRS noted that regulatory guidance is essential to the operation of the statutory provisions under the Health Care Reform Legislation. As a result, the IRS (in conjunction with the Department of Labor, the Department of Health and Human Services and the Treasury Department (collectively, the “Agencies”)) has now decided that until regulations or other administrative guidance of general applicability has been issued by the Agencies, employers sponsoring non-grandfathered fully-insured group health plans will not be required to comply with the Code Section 105(h) nondiscrimination requirements.
IRS’ Request for Public Comments
The Notice lists several specific issues that the Agencies will most likely address in future guidance regarding the application of the Code Section 105(h) nondiscrimination requirements to fully-insured group health plans. For example, the IRS has requested public comments on issues such as whether to provide an alternative method of compliance involving an “availability of coverage” test, safe harbor plan designs, and transition rules following mergers and acquisitions. The deadline to submit comments regarding these issues is March 11, 2011.