What regulations apply to defining fully-insured defined contribution funding arrangements?
We occasionally get questions from brokers and employers about how they should set up their defined contribution funding arrangements. In a future post we’ll share some of the general guidance that brokers can share with their clients. However, in this post we’ll take a more technical approach, looking first at the regulations that apply to employers moving to a full defined contribution funding arrangement.
HIPAA (1996) required that self-funded group health plans comply with nondiscrimination requirements which require, in a nutshell, that employers not provide tax-advantaged benefits in such a way that favor highly-paid individuals or company owners. Other provisions of HIPAA required that the employer’s plan not disfavor individuals with adverse health conditions.
Fourteen years later, the Affordable Care Act (2010) extended the HIPAA nondiscrimination requirements to fully-insured group health plans but didn’t define what those rules would be. Less than a year later, the IRS issued a notice stating that employers sponsoring fully-insured plans “should not” need to comply with the non-discrimination requirements, nor would there be sanctions for non-compliance. The notice added that compliance would not be expected until after regulations were published and even then the regulations would apply only to future plan years.
As of April 2014, the IRS has still not issued this guidance and thus employers sponsoring fully-insured group health plans are not required to comply with the §105(h) non-discrimination requirements. The prudent choice; however, is for fully-insured plan sponsors to pattern plan designs (including designs for defined contribution funding arrangements), based on the same regulations that apply to self-funded plans.
In a future post we’ll review those regulations and provide examples of how some employers are leveraging defined contribution funding arrangements to better control the annual health benefits’ spend.