What is ACA-Section 2716 Non-Discrimination Testing for Fully Insured Plans?

Under the Affordable Care Act (ACA), Section 2716 extends non-discrimination rules to fully insured health plans, preventing them from favoring highly compensated individuals (HCIs) in plan eligibility or benefits. While these requirements are modeled after the non-discrimination rules for self-insured plans under Internal Revenue Code Section 105(h), they are designed to ensure greater equity in employer-sponsored health coverage across the workforce.

The non-discrimination rules focus on two main areas:

1. Eligibility: Fully insured plans must ensure that eligibility criteria do not disproportionately exclude rank-and-file employees while providing coverage to HCIs. For example, offering health coverage only to executives or managers may raise compliance concerns.
2. Benefits: Plans must offer comparable benefits to all eligible employees, ensuring that HCIs are not provided with richer or more exclusive benefits compared to non-HCIs.

HCIs are generally defined as the five highest-paid officers, shareholders owning more than 10% of the company, and the highest-paid 25% of employees. Violations of these rules could result in excise taxes of $100 per affected individual per day, among other penalties.

However, the enforcement of Section 2716 has been delayed due to the absence of finalized IRS regulations. Despite this delay, employers are encouraged to assess their fully insured health plan designs proactively. Reviewing plan eligibility, benefit structures, and participation rates can help identify potential disparities and prepare for eventual compliance requirements.

Employers should stay informed of regulatory updates and consider consulting legal or compliance professionals to align their health plans with the principles of non-discrimination. Taking proactive steps now can help mitigate risks and demonstrate a commitment to fairness in employee benefits.

References

1. Patient Protection and Affordable Care Act, Section 2716. Retrieved from https://www.congress.gov/bill/111th-congress/house-bill/3590
2. Internal Revenue Service. (n.d.). FAQs on Non-Discrimination Rules for Fully Insured Plans. Retrieved from https://www.irs.gov
3. Society for Human Resource Management. (2023). ACA Compliance Guide for Employers. Retrieved from https://www.shrm.org

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