Benefits & Compensation News

Obamacare’s nondiscrimination rules carry staggering fines

Compared to the “pay or play” penalties, very little attention has been given to what happens when firms violate Obamacare’s nondiscrimination rules. But this is one area of health reform compliance you can’t afford to ignore.

As you know, the nondiscrimination rules generally prohibit employers from offering current or former workers healthcare coverage that isn’t available to all employees within the company.

It’s not uncommon for firms to offer these type of benefits to highly compensated employees or execs to help with recruiting and retention.

But the nondiscrimination rules go a long way to discourage this practice. And employers that don’t comply face some very stiff penalties.

The penalty for noncompliance with the Obamacare nondiscrimination rules is an eye-opener: $100 per day for each non-highly compensated worker who isn’t eligible for the exec package, until the plan is in compliance.

To put that in perspective, a 100-employee firm that offers more generous benefits to just 10 highly compensated staffers would be penalized for the coverage offered to the other 90 employees – up to $500,000.

Of course, the feds said they wouldn’t enforce this reform reg until they issue the final rules on the subject, which hasn’t happened yet.

But most employment law experts expect the final rules to be issued on or around Jan. 1, 2014.

And in 2018 …

On top of nondiscrimination penalties, firms with exec health plans also have the reform law’s “Cadillac” tax to consider.

As they’re structured, the majority of these rich health plans will incur the 40% tax that’s imposed on plans with premiums exceeding $10,200 for individuals and $27,500 for family coverage.

What you can do now

One thing employers can do is perform a self-test to see if they pass the current nondiscrimination rules. If your firm fails now, you’re likely to fail when the feds finalize the rules. Here are some things to keep in mind.

A plan must: A.) benefit 70% or more of all workers B.) benefit 80% or more of all employees who are eligible for benefits, or C.) benefit a group of workers set up by the company as a class that isn’t highly compensated – to avoid being considered discriminatory.

For an individual to be considered a highly compensated employee, he or she can be either:

  • One of the five highest paid officers
  • A shareholder owning more than 10% of the company stock, or
  • A worker who is among the highest paid 25% of all workers.

For most firms, this can be determined simply by looking at the top 25% of their payroll.

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