IRS Releases Health Care Reform Guidance Related To Nondiscrimination Requirements, Executive Compensation, Automatic Enrollment and Advance Notice of Material Modifications

By on January 5, 2011

by Joseph S. Adams, Jonathan J. Boyles, Raymond M. Fernando, Andrew Liazos and Maureen O’Brien

New Nondiscrimination Requirement for Fully-Insured Health Plans. On December 22, 2010, the IRS released Notice 2011-1 addressing the timing of the application of the provisions of the Patient Protection and Affordable Care Act (PPACA), prohibiting insured group health plans from discriminating in favor of highly compensated individuals. The Treasury Department and the IRS, as well as the Departments of Labor and Health and Human Services (collectively, the Departments), have determined that compliance with these requirements should not be required (and, thus, any sanctions for failure to comply do not apply) until after regulations or other administrative guidance of general applicability have been issued. Because noncompliance with the new requirement can trigger an excise tax, this Notice was welcome relief for companies struggling to determine how to comply with these requirements by January 1, 2011. 

New Code Section 162(m)(6) Deduction Limit. On December 22, 2010, the IRS released Notice 2011-02 which provides guidance on the application of Section 162(m)(6) of the Internal Revenue Code, a new provision added by PPACA. Code Section 162(m)(6) limits to $500,000 the allowable deduction for remuneration for services provided by individuals to certain health insurance providers. Notice 2011-2 does several things including defining which individuals are subject to the limit, establishing a helpful exception for entities only receiving a de minimis amount of health insurance premiums, and clarifying that deferred compensation earned before 2013 will not be subject to the Section 162(m)(6) deduction limitation when paid after the end of the 2012 tax year if the employer is not a post-2012 covered health insurance provider. However, the Notice does not provide guidance on a hot issue for many large companies with captive insurance companies regarding whether the captive’s receipt of health insurance premiums could subject executives throughout the entire company to the new deduction limit.

Click here for more information regarding Notice 2011-1 and Notice 2011-2. 

New Implementation Questions and Answers Issued Regarding Application of Various PPACA Requirements. The Departments have issued a fifth set of implementation questions and answers addressing a variety of issues under PPACA. This new guidance clarifies that compliance with automatic enrollment provisions for employers with 200 or more employees is not required until regulations or other guidance is issued interpreting this provision. This guidance also clarifies that the 60-day advance notice requirement with respect to material modifications to group health plans pursuant to Section 2715(d)(4) of the Public Health Service Act (added by PPACA) will not be required until group health plans are required to provide the summary of benefits and coverage explanation required under the same section of PPACA. Under Section 2715 of PPACA, the Departments are supposed to provide standards for group health plans to use in compiling and providing a summary of benefits and coverage explanation within 12 months from the date of enactment of PPACA, and group health plans must comply with the standards by March 23, 2012. The Departments have not yet issued the standards, and thus the 60-day advance notice requirement is not in effect.

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