Question: Under Obamacare, can small businesses still offer health insurance based on classifications of employees, such as offering management and salaried employees insurance but not offering it to technicians and hourly employees? If we can’t do that, can we offer other extra benefits to our management team? And can we cover less of their premiums since they are already making more money than the rest of the staff?
Answer: The Affordable Care Act extended nondiscrimination rules for health insurance that originally applied to self-funded insurance plans, typically offered by large employers, to all health insurance plans. That means that, under Obamacare, those rules are likely to apply to small and midsize companies as well. The IRS rules, dating back to 1981, don’t allow employers to offer health insurance—or better health insurance—only to their executives and owners.
The rules covering nondiscrimination in health plans, however, have not yet been issued, and the IRS has announced that they will not be enforced until they are, says Steve Friedman, an attorney in Littler Mendelson’s Healthcare Reform Consulting Group in New York City. “We’re all waiting to see exactly what the government will and won’t allow when they finally issue the nondiscrimination rules,” he says.
Once the rules are released, businesses will have at least until the beginning of the following calendar year to comply. “No one knows when they’re coming out with the rules, but we doubt it will happen this year,” Friedman says. Even when they are released, the new rules will not apply to companies whose health insurance plans are grandfathered in, meaning they offer the same benefits they did back when the ACA was passed in 2010. “If your plan is grandfathered, the new nondiscriminatory rules will not apply and your company can continue to discriminate in favor of management and salaried employees as in the past,” says John Barlament, a lawyer in the employee benefits group at Quarles & Brady, in Milwaukee.
Still, once the rules are in place, employers face stiff fines if their policies favor highly paid employees: $100 a day for each employee that isn’t eligible for the better plan. If your company is likely to be affected, it makes sense to start planning now for rules that could be in effect starting in 2015.
As to your next question—yes, you can give extra benefits to your executives as long as the benefits are provided under a separate contract not linked to your main health-care policy, says Michael Capaldo, director of employee benefit consulting for American Investment Planners in Jericho, N.Y. The U.S. Department of Labor has a list of “excepted benefits”—including long-term care insurance and limited-scope dental or vision coverage—on its website. “You could also give your highly compensated employees something like cash bonuses to pay for their other insurance, such as homeowner’s,” Capaldo says.
Finally, your last question asks about whether you can discriminate in favor of lower-paid employees by footing more of the bill for their insurance than you do for your salaried employees. That’s always been allowable and won’t change under Obamacare, Barlament says. “At our law firm, like many others, the attorneys pay more for their insurance than the nonattorney staff because it is recognized that the attorneys make higher salaries and can afford to cover more of their own costs.”