Today’s ExecuCare: Compliance Questions Answered
A Look Back
With the passage of the Affordable Care Act (ACA) in March of 2010, the executive health insurance landscape changed dramatically. The ACA incorporated a provision that extended “105(h)-like” nondiscrimination rules to fully insured health plans, but not to health insurance plans falling under the category of excepted benefits.
This impacted many of the older supplemental reimbursement plans that were not filed as excepted benefits, most notably the previous version of Exec-U-Care. As part of their market exit, the underwriting carrier for Exec-U-Care searched for a compliant solution they could recommend to their clients as a trusted alternative. They turned to ArmadaCare’s fully insured excepted benefit plans.
How the Market Has Evolved
There has also been a high degree of market confusion and general lack of awareness that there is still a viable option post ACA’s regulatory changes. Many employers, and their advisers, are under the impression that all such plans have been eliminated. While this is not true, there are two significant compliance considerations that need to be understood and evaluated for any plan you are considering:
The plan MUST be fully insured.
To remain compliant, a plan must demonstrate adequate risk transfer to an independent third party (insurance carrier). This is important because you CANNOT provide tax-efficient reimbursements under a self-insured arrangement.* As specified in the tax code, this constitutes a prohibited structure and may, therefore, be subject to taxation:
Section § 1.105-11 (Self-insured medical reimbursement plan) further outlines the taxability question: (a) In general. Under section 105(a), amounts received by an employee through a self-insured medical reimbursement plan which are attributable to contributions of the employer, or are paid by the employer, are included in the employee's gross income unless such amounts are excludable under section 105(b)…. …a plan that does not involve the shifting of risk to an unrelated third party is considered self-insurance and that a cost-plus policy or a policy which in effect merely provides administrative or bookkeeping services is considered self-insured for the purpose of this section.”
The plan MUST qualify as an excepted benefit.
ACA’s new nondiscrimination rules ONLY apply to traditional corporate medical plans, not insurance plans that fall under any of the four excepted benefit categories. Examples of excepted benefits include Critical Illness insurance, Medicare and other similar supplemental plans, Accident/Injury insurance, and Hospital Indemnity insurance.
Of note, a plan does not qualify to be an excepted benefit if you cannot demonstrate that it is fully insured as described above. Excepted benefits only apply to fully insured plans. Thus, it is paramount to ensure that the plan functions as insurance and that the company offering it can demonstrate how they also meet excepted benefit regulations.
Today’s ExecuCare: Credibility and Compliance
Backed by SiriusPoint America, a highly rated carrier, ExecuCare is a supplemental health insurance plan which checks all of these compliance boxes:
Fully insured
(not cost-plus funding structure)
Meets Section 105(h) tax code requirements
Qualifies as an excepted benefit under PHSA Section 2791(c)
What this means for you is that today’s ExecuCare, brought to you by ArmadaCare, can be offered to select employees without nondiscrimination concerns. Want more information on compliance? Simply contact us.
Please note this information is provided as a courtesy only and should not be construed or interpreted as any form of legal advice or legal opinion. We recommend you seek the independent counsel of your legal advisors.