Executive diagnostic (physical) plans areallowed to be offered only to Highly Compensated Employees withoutrunning afoul of the Internal Revenue Code § 105(h)nondiscrimination rules.

However, if offered to more than one person, it would be a grouphealth plan, subject to the full range of preventive care servicesrequired by health care reform (counseling for smoking cessation,weight loss, depression, alcohol use, and a broad range of women’shealth services).

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In addition, if the program imposes any annual dollar limit onthe benefit, such as a maximum reimbursement amount, it wouldviolate health care reform’s prohibition on annual dollar limitsbecause preventive care services are essential health benefitssubject to this prohibition.

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Thus, unless an executive physical program serves only retiredexecutives, just one active employee, or provides only exceptedbenefits, it is unlikely to satisfy health care reform mandates ona stand-alone basis.

Four approaches for such a compliant plan are possible:

1. Utilize another group health plan

First, an executive physical program could be designed to bedelivered through another group health plan sponsored by theemployer (such as your major medical plan) that already complieswith the health care reform mandates.

In other words, the executive physical program would be abenefit delivered under a compliant group health plan, butavailable only to a select group of employees.

That benefit would presumably be available only to highlycompensated individuals, but it could avoid running afoul of theCode § 105(h) nondiscrimination rules if it is limited to thosemedical diagnostic procedures for employees that are not consideredpart of a self-insured health plan for purposes ofnondiscrimination testing.

2. Defined contribution HRA

Second, a defined contribution HRA approach is possible.

An employer could provide an executive physical benefit througha health reimbursement arrangement (HRA).

The company could credit a certain amount of money to eachexecutive’s HRA annually, and those funds would be available onlyto reimburse expenses for services that the company had defined aspart of the executive physical program.

To comply with health care reform’s rule prohibiting annualdollar limits on essential health benefits (and with the preventivehealth services mandate), the HRA would need to be integrated withother group health plan coverage (such as the company’s majormedical plan) that provides minimum value.

To avoid nondiscrimination testing concerns, it would need toreimburse only those medical diagnostic procedures that are notsubject to testing under Code § 105(h).)

3. Increase executive compensation

Third, the employer can increase the executives’ compensationand facilitate their voluntary contributions to Health SavingsAccounts (HSAs) on a pre-tax basis through the company’s cafeteriaplan, and the executives could use their HSAs to pay for their ownphysical examinations.

While in this scenario, the employer could not control whetherHSA contributions are actually made and how HSA funds are spent, itstill may be effective if the executives understand the importanceof the exams and the value of a truly comprehensive examination(i.e., one that is not constrained by the boundaries of the medicaldiagnostic procedures exception under Code § 105(h)).

4. No dollar limit plan

Fourth, provide a plan that has no dollar limits.

While there is obviously a financial risk to the employer, ifthe employer trusts the executives not to abuse the program, thereshould not be a lot of exposure to the employer becausehospitalization and other potential health care expenditures arenot involved in such a plan.