To avoid a penalty or other consequences under health care reform, employers should start reviewing benefit and severance arrangements with their executive employees.
SullivanCotter, a consulting firm with expertise in health care executive compensation, released findings that show how health care reform laws might affect executives' benefits.
A possible risk for employers is a prohibition within Section 125 of the Internal Revenue Code which prohibits discrimination in favor of high-paid employees and those with better health benefits. For example, executives many times are given continued health care coverage with severance, which is not typically offered to lower-ranking employees.
Another issue is that the health care reform law no longer includes exceptions to the nondiscrimination requirements. Before health care reform, the nondiscrimination requirements for high-paid individuals only applied to self-insured plans, not fully insured plans.
Now, the nondiscrimination requirement will apply to both self-insured and fully insured plans and any violations under the latter come with harsh penalties. Non-compliant plans are subject to a $100 excise tax per individual discriminated against, or could even lead to civil action.
The reform law's nondiscrimination requirement applies only to non-grandfathered fully insured plans and will go into effect Jan. 1, 2012.
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