Executive diagnostic (physical) plans are allowed to be offered only to Highly Compensated Employees without running afoul of the Internal Revenue Code § 105(h) nondiscrimination rules.

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

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In addition, if the program imposes any annual dollar limit on the benefit, such as a maximum reimbursement amount, it would violate health care reform’s prohibition on annual dollar limits because preventive care services are essential health benefits subject to this prohibition.

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Thus, unless an executive physical program serves only retired executives, just one active employee, or provides only excepted benefits, it is unlikely to satisfy health care reform mandates on a 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 be delivered through another group health plan sponsored by the employer (such as your major medical plan) that already complies with the health care reform mandates.

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

That benefit would presumably be available only to highly compensated individuals, but it could avoid running afoul of the Code § 105(h) nondiscrimination rules if it is limited to those medical diagnostic procedures for employees that are not considered part of a self-insured health plan for purposes of nondiscrimination testing.

2. Defined contribution HRA

Second, a defined contribution HRA approach is possible.

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

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

To comply with health care reform’s rule prohibiting annual dollar limits on essential health benefits (and with the preventive health services mandate), the HRA would need to be integrated with other group health plan coverage (such as the company’s major medical plan) that provides minimum value.

To avoid nondiscrimination testing concerns, it would need to reimburse only those medical diagnostic procedures that are not subject to testing under Code § 105(h).)

3. Increase executive compensation

Third, the employer can increase the executives’ compensation and facilitate their voluntary contributions to Health Savings Accounts (HSAs) on a pre-tax basis through the company’s cafeteria plan, and the executives could use their HSAs to pay for their own physical examinations.

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

4. No dollar limit plan

Fourth, provide a plan that has no dollar limits.

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4 ways that an executive physical (diagnostic) plan is still possible under health care reform

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