December 23, 2010 – Holiday Miracle or Common Sense?
Agencies Delay Applicability and Enforcement of Fully Insured Nondiscrimination Requirement
IRS Notice 2011-1, available at http://www.irs.gov/pub/irs-drop/n-11-01.pdf, delays the application and enforcement of the nondiscrimination requirements applicable to non-grandfathered fully insured medical plans.
Very Important – JUST FULLY INSURED. IRS Notice 2011-1 only impacts fully insured plans. Self-insured plans continue to be subject to the Code’s nondiscrimination requirements and consequences.
IRS Notice 2011-1 notes in part that “because regulatory guidance is essential to the operation of the statutory provisions . . . compliance with § 2716 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 has been issued under § 2716.” This means:
- No excise tax under the Code § 4980D ($100 per day per person discriminated against);
- No Form 8928 self-reporting of excise tax due to nondiscrimination failure;
- No civil penalties; and
- No civil action to enjoin noncompliant conduct or seek other equitable relief.
In addition, Notice 2011-1 specifically states that “the Departments anticipate that the guidance will not apply until plan years beginning a specified period after issuance.” In other words, compliance will be prospective.
The agencies received many comments and questions, including several from this office. Specifically called out in Notice 2011-1 are (1) the difference in penalty between a self-insured plan violation and a fully insured plan violation; (2) the ambiguous reference to “rules similar to” the rules that apply to self-insured plans, and (3) the fact that implementation will take time.
Notice 2011-1 concludes with a list of areas about which the agencies are requesting additional comment. In general, the list is impressive. It reflects genuine concern regarding the types of application and implementation problems associated with the statutory mandate. The comment period is open until March 11, 2011. This is an opportunity to provide real life situations and possible ways to address them.
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Please contact us if you have any questions regarding the contents of this Alert.
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The information contained in this ALERT is intended for general information purposes only and does not constitute legal advice relative to a specific situation.