Nondiscrimination Testing for Group Health Plans FAQs
The Patient Protection and Affordable Care Act (PPACA) requires fully insured health
plans to meet rules regarding nondiscrimination. Previously, these requirements
applied only to self-insured plans.
What are the nondiscrimination testing requirements?
A group health plan cannot discriminate in favor of highly compensated individuals
with respect to either eligibility to participate or to benefits.
Eligibility test. For a plan to be considered nondiscriminatory
with respect to eligibility to participate, it must meet one of the three coverage
- Seventy percent of all employees benefit under the plan.
- The plan benefits 80 percent of eligible employees; 70 percent of all employees
- The plan benefits a nondiscriminatory classification of employees.
Benefits test. For a plan to be considered nondiscriminatory with
respect to benefits, the plan must provide the same benefits for both highly compensated
and non-highly compensated employees.
What is a highly compensated individual?
A highly compensated individual is:
- One of the company’s five highest-paid officers.
- A shareholder owning more than 10 percent of the company’s stock.
- Among the top 25 percent highest-paid employees.
When does this requirement become effective?
The requirement is effective for plan years beginning on or after Sept. 23, 2010.
What is the penalty for not complying with the new requirements?
An excise tax penalty of $100 per day per failure applies to insured nongrandfathered
plans that do not meet the requirements. Employers must report the violation and
pay the penalty. The penalty does not apply to small employers with two to 50 employees.
Do these nondiscrimination requirements apply to all plans?
No, the nondiscriminatory testing requirements do not apply to individual plans
or insured grandfathered group plans. Self-insured group plans are subject to the
nondiscrimination rules as they existed before health care reform, regardless of
whether they are grandfathered.
This information is based on HMSA’s review of the national health care reform
legislation. This overview is intended for educational purposes and should not be
used as tax, legal, or compliance advice. Interpretations of the legislation vary
and some reform regulations differ for particular members enrolled in certain groups.
HMSA will continue to present and update information related to national health
care reform as additional guidance becomes available.