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New HHS Non-Discrimination Rules

Posted on July 1st, 2016

The Department of Health and Human Services (HHS) recently issued a final rule which effectively implements Section 1557 of the Affordable Care Act (ACA). The new rule prohibits certain discriminatory acts from occurring for health programs or activities that are administered by HHS, including plans that are sold on federal and state Marketplaces. 
Under the rule, individuals are protected from discrimination in health care on the basis of race, color, national origin, age, disability and sex, including discrimination based on pregnancy, gender identity and sex stereotyping. Previous civil rights laws enforced by HHS’ Office for Civil Rights (OCR) only prohibited discrimination based on race, color, national origin, disability, or age. 
Examples of the protections that Section 1557 of the ACA provides are as follows:
  • Health insurance companies participating in the Marketplace are prohibited from marketing practices or benefit designs that discriminate on the basis of race, color, national origin, sex, age, or disability.
  • Health care providers, such as hospitals that accept Medicare or doctors who participate in the Medicaid program are prohibited from discriminatory practices on the basis of the criteria mentioned previously. 
  • Women are protected from discrimination not only in the health coverage they obtain but in the health services they seek from providers.
For a summary of the new HHS non-discrimination rule please click here
New IRS Non-Discrimination Rules
Other non-discrimination rules may soon be issued by the Internal Revenue Service (IRS). These rules will apply to employers who offer fully insured health plans, and the rules will be designed to prevent discrimination based on compensation. Some Department of Treasury and IRS officials have informally commented that these non-discrimination rules could be issued by the end of the year.     
In essence, the rules will be structured so that the employer isn’t discriminating in favor of highly compensated individuals (HCIs) as it relates to the fully insured health plan(s). HCIs generally include the highest-paid 25% of all employees, one of the five highest-paid officers at the company, and any more-than-10% shareholder. 
The IRS non-discrimination rules are intended to ensure that enough non-HCIs are eligible to participate in the plan. The rules are also intended to ensure all participants are receiving the same benefits and contributions from the employer. Employers with grandfathered fully insured health plans will be exempt from the new rules.    
Similar rules apply to self-insured health plans today. The consequence of failing the non-discrimination testing for a self-insured plan results in the value of the discriminatory benefit becoming taxable to HCIs. However, with fully insured health plans, the employer will be subject to a penalty of $100 per day per participant discriminated against, up to $500,000. 
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The materials contained within this communication are provided for informational purposes only and do not constitute legal or tax advice.   

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