Health Perks Geared To Top Workers Could Trigger Penalties Under Health Law
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Many executives have long enjoyed perks like free health care and better health benefits for themselves and their families. But under a little noticed anti-discrimination provision in the federal health law, such advantages could soon trigger fines of up to $500,000.

Employers 鈥渟hould be more concerned about this than anything else鈥 in the law, because many are in violation and the penalties can be stiff, says Jay Starkman, chief executive of Engage PEO in St. Petersburg, Fla., which offers human resources services and advises clients on the health law.
The provision says that employers who offer more generous benefits to highly paid workers could face fines of $100 a day for every worker who doesn鈥檛 get the perks, up to $500,000.
It applies to employers who buy benefit packages for their firms from insurers. Those who self-fund their coverage, who tend to be larger firms, already face similar restrictions under Internal Revenue Service rules which pre-date the law.
To make sure his own small company complies with the law, Starkman began paying $600 in premiums toward his family鈥檚 coverage last month, putting him on an even playing field with his 60 employees.
He says the rule makes sense, noting that executives are likely to get little sympathy from the public.
鈥淭he right way to handle it is to have the same benefits for everyone,鈥 he says, noting that firms can increase wages to managers or executives to cover their additional costs.
But business owner Steve Diddams worries that complying with the provision could erase his profits.
Diddams, owner of seven Diddams Party & Toy retail stores in California, has about 100 employees, most of whom are paid hourly and who don鈥檛 get health insurance.聽 But because he offers about 20 managerial workers HMO coverage, he might fall afoul of the discrimination rule. He could also be subject to a $2,000 per worker penalty for not offering coverage to his hourly employees, although lawyers say they鈥檙e not sure he would face fines for both.
Raising his prices to cover the cost of expanded health coverage really isn鈥檛 an option. 鈥淥ur customers are moms with kids, and it comes to a point where they are not going to pay $2 for a balloon,鈥 Diddams says.
The anti-discrimination provision is technically in effect now, but the IRS says it will not impose penalties until it completes regulations and issues guidance about how the provision will be enforced.聽
Employers are likely to have until 2015 to figure out whether they comply, says Terry Dailey, a partner at Mercer, a benefit consulting firm.
The IRS rule offers guidelines explaining who is a highly paid employee,聽and says a plan discriminates if it favors such workers in terms of eligibility or benefits.
There are differences between the IRS rule and the federal health law provision. For example, if a self-insured firm is found to violate the IRS rule, the employees getting more generous benefits could end up paying taxes on their value. In contrast, the federal health law imposes fines on the employer, most of whom are expected to be small and mid-sized firms.
Congress likely saw the provision as 鈥渁n additional deterrent to [employers] picking and choosing鈥 who gets health coverage,鈥 says attorney Timothy Tornga, of Mika Meyers Beckett & Jones in Grand Rapids, Mich., who advises employers.
Those penalties 鈥渇all especially hard on the small business population,鈥 and may encourage some small firms to switch to self-funding their medical coverage, , which represents firms involved in agriculture, food service and retail, in comments submitted to the IRS.
In seeking comments, the IRS asked employers and others how to define 鈥渂enefits.鈥 Do they include, for example, not just the coverage provided, but how much employees pay toward those costs? Some firms, for example, charge executives less than other employees 鈥 or nothing at all 鈥 toward coverage. Would that count as being discriminatory?
Some groups don鈥檛 think so, and are urging the IRS to exclude the employee contributions from its calculations. Benefits are 鈥渓imited to only those goods and services that are payable by the plan,鈥 says the , a trade association for employers.
罢丑别听that the federal law builds upon are unclear, rarely enforced and 鈥渦nworkable,鈥 wants the agency to replace them entirely rather than issuing rules 鈥渟imilar鈥 to them.
Mercer鈥檚 Dailey says there are no good national statistics on how many employer plans might be considered discriminatory under the law.
Any fully insured plan that existed before the health law, and which has not been significantly changed is 鈥済randfathered鈥 and therefore exempt.
鈥淲e don鈥檛 see 鈥 [discriminatory policies] every day, but it鈥檚 not infrequent,鈥 he says. 鈥淭here will be many employers who will need to look at their plan designs and potentially make changes.