1. News Flash: January 21, 2014—Nondiscrimination Requirements for Insured Plans – New
York Times Article Raises the Issue to the Public
Willis has noted in several publications that the Patient Protection and Affordable Care Act
(“PPACA”) includes a provision that would eliminate the ability to discriminate in favor of highly
compensated employees (“HCEs”) in non-grandfathered fully insured group medical plans (see
Willis HCP Alert, May 16, 2011, “What Do We Do Now? Updated Health Care Reform
Timeline,” Willis HR Focus Issue #44, February 2011, “Nondiscrimination Requirements For
Insured Health Plans Delayed,” Willis HR Focus, Issue #41, November 2010, “MERPS – How
Will Health Care Reform Affect Them?” and Willis Human Capital Practice Alert, Vol. 3, No. 3,
“First Things First: Health Care Reform in 2010 And 2011”). Self-funded plans have had
nondiscrimination requirements apply for decades but PPACA added new requirements that
prohibit non-grandfathered fully insured plans from discriminating in favor of HCEs as well. The
rules around the nondiscrimination prohibition are well-known and employers and their advisors
understand how to administer plans under those rules.
Unfortunately, the PPACA prohibition did not just append the self-funded rules to fully insured
plans. Instead there were two main differences that raise some concerns. First, PPACA used
vague language that stated that rules “similar” to the rules for self-funded plans would be
used. That leaves a lot of leeway for interpretation and the federal agencies charged with drafting
the rules have not been able to come to a simple set of requirements. This means that employers
do not really know how to implement the rules around fully insured plans. Moreover, the penalty
for a violation is $100/day for every non-HCE that does not get the discriminatory benefit. That
could mean huge penalties for employers if that penalty is enforced. In self-funded plans, HCEs
are essentially the top 25% of all employees based on pay. That means that for an employer with
just 100 employees the potential penalty might be as high as $7500/day. That is not a penalty
many employers would take lightly.
Since there was so much leeway in the implementation of the rules and the agencies were not able
to just append the old rules to the new prohibition, they delayed the requirement’s effective date
until they could come up with the rules. That effective date was to be in 2012 and that never came
to pass. The industry assumed the effective date would be in 2014 – of course we are now IN 2014
and we still have no rules and no effective date. So when will the rules be promulgated? We don’t
know for sure but a recent development is sure to accelerate that eventuality.
On January 19, 2014, the New York Times printed an article that discussed this regulatory
delay. (See http://www.nytimes.com/2014/01/19/us/rules-for-equal-coverage-by-employersremain-elusive-under-health-law.html?_r=1 for an on-line version of the article.) That article was
relatively even-handed but it clearly did not endorse the delay and was not advocating further
delay. Indeed, many of the other news outlets have jumped on this to decry yet another delay in
the PPACA mandates and implementation. Employers should know that this is not about a new
delay. This is the same delay that has been in place for several years. Willis is asked periodically

2. when this delay will end and we have not been able to predict that time. Therefore, current
employer practices that might violate the new rules will likely continue to have a grace period until
the new rules are issued. However, employers should also be aware that the additional public
discussion of the nondiscrimination requirements is likely to increase the pressure on federal
agencies to issue regulations and they should be prepared to make changes relatively quickly when
the new rules are issued.
The information in this publication is not intended as legal or tax advice and has been prepared
solely for informational purposes. You may wish to consult your attorney or tax adviser
regarding issues raised in this publication.