Nondiscrimination Health Plans
Can a startup company offer health insurance to salaried executives and not to hourly workers?
I’m going to break this question down into a few bite size chunks because there are a few different ways this can go. The current guidance to this question falls to IRS notice 2011-1 spelling out non-discrimination language in the Affordable Care Act. Here’s the rub. The provisions have been put on hold until the IRS comes out with new guidance regarding what is to be considered a highly compensated employee for the purposes of non-discrimination testing on a company health insurance plan. Even when the guidance comes from the IRS, any changes will not take place for at least 6 months after issuance of the guidance. This new guidance has not been released by the IRS up to this point.
Can a startup offer health insurance to salaried executives and not to hourly employees if those employees are considered full time?
No. This goes to vendor level specifications in their contract provisions and underwriting guidelines. There isn’t a health insurance vendor that I am aware of nationwide, and i’ve dealt with all the majors, who don’t spell out what is to be considered an eligible employee in their contract and in their employer level application. Usually the employer application will spell what is to be considered a full time eligible employee at 30 hours a week or allow for a company to dictate a guideline up to 40 hours. The point is that the vendor will require that all employees above a certain number of hours (considered full time) to be considered eligible employee and as such be offered coverage. Does that make it federal statute, not yet. At the same time, are you putting your signature to the health insurance application, yes.
The insurance companies know what is coming, that’s why they do it. If a company is doing something they shouldn’t when the enforcement begins, the vendors are going to cover themselves. Indirectly, they are covering their customers by forcing their hands too.
Can a startup offer more to executives in terms of benefit toward health insurance versus hourly (rank and file) employees?
As of the time of this writing, yes, but that will be changing and probably soon. Obamacare dictates that paying more in benefit to an executive class of employee violates the non-discrimination provision of the Affordable Care Act. This is laid out in full in IRS release 2011-1. But, and it’s a big But, these aspects regarding non-discrimination testing (not so dissimilar to what you would see on 401k plans) were put on hold, were held for comment on the laws by the IRS, and subject to further guidance before the components of the laws were to be enforced. Once again, as of this writing, the guidance hasn’t been handed down by the IRS, therefore a company can offer more in terms a contribution or benefit to an executive class of employee versus the rank and file.
Does this make it a good idea? Not my call, that’s yours. Understand that when the other shoe drops….and it will….violating the enforceable statute will be costly. A resource from the Society for Human Resource Management that goes into more detail concerning this are as follows:
Nondiscrimination Rules for Health Plans Loom Ahead
For those that want the quick and dirty, penalties of $100 per day, per employee who gets less favorable treatment up to 500k is the penalty. Not someplace you want your company to be knowing that these rules are going to be enforced at some point down the road.
Needless to say this issue is fraught with potential landmines. My advice, just don’t do it. If you need to make things right with an executive, make it up someplace else besides on healthcare, the downside is just too big given the changing environment.
When should a startup consider Directors and Officers liability coverage?
Here are a few trigger points where a company will want to get this directors and officers coverage in place.
A prerequisite to a funding round
You are trying to land a board member and they require it
CYA-Cover Your Ass
For more information you can check the following related posts:
Management Liability policies: Is it just Directors and Officers coverage?