The new health care law enacted this year eliminates the old ability to create discriminatory health insurance plans which were used by many one-owner and husband-and-wife-owned businesses. However, existing discriminatory plans are grandfathered by the law and allowed to continue discriminate as before.
Our article, New Law Grandfathers Discriminatory Health Insurance, will help you determine if your business can continue to discriminate with its health insurance.
What Is Discriminatory Health Insurance?
One-owner businesses with employees usually avoided the Section 105 medical reimbursement plan because of its anti-discrimination rules that required coverage of all employees.
To get around covering all the employees, many one-owner businesses established a plan based on health insurance that permits certain types of discrimination.
Under such a discriminatory health insurance plan, the business covers select employees with health insurance while providing no insurance for other employees. Tax law allows a deduction for such a plan.
The Patient Protection and Affordable Care Act (2010 Health Care Act), P.L. 111-148, and the Health Care and Education Reconciliation Act of 2010 (2010 Reconciliation Act), P.L. 111-152, establish new discrimination guidelines that apply the Section 105 discrimination rules to insurance plans that are not grandfathered plans.
Protect Your Grandfathered Status
To maintain status as a discriminatory grandfathered health plan, your business health insurance coverage must include a statement to the plan participant that you, the employer, believe the benefits under the plan are grandfathered within the meaning of Section 1251 of the Patient Protection and Affordable Care Act.
You must also maintain records that document the coverage in effect on March 23, 2010, and any other documents necessary to verify, explain, or clarify the plan's status as a grandfathered health plan. Such records must be available for examination by the IRS upon request.
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