How Rigorous Will the PPACA’s Nondiscrimination Testing Rules Be?

January 18, 2011 ( – This week, a reader asks “I am confused about how rigorous the nondiscrimination testing rules applicable to insured group health plans will be and when testing will be required and enforced.  What is the status?” 


PPACA amends section 2716 of the Public Health Service Act (“PHSA”) to apply certain nondiscrimination requirements that are “similar” to those in section 105(h) of the Internal Revenue Code (the “Code”) to fully insured, nongrandfathered group health plans.  PPACA also incorporates these new requirements into the Code and the Employee Retirement Income Security Act (“ERISA”).   


On September 20, 2010, the IRS issued Notice 2010-63 requesting comments on the application of the Code section 105(h) nondiscrimination rules to insured group health plans and providing certain information regarding penalties.  In response, the IRS received  numerous comments requesting guidance detailing the meaning of the reference in PHSA section 2716 to applying rules “similar to” certain rules in Code section 105(h).  Among other things, the comments requested the issuance of simplified testing rules and safe harbors.   


On December 23, 2010, the IRS issued Notice 2011-1, which states generally that the IRS, along with the Departments of Treasury, Labor and Health and Human Services (the “Agencies”), have determined that compliance with the nondiscrimination rules applicable to insured plans should not be required, and no sanctions should be imposed, until after regulations or other guidance of general applicability has been issued.  Further, Notice 2011-1 states that the Agencies anticipate that the guidance will not apply until plan years beginning a specified period after its issuance, and that before the beginning of those plan years, insured group health plans will not be required to file IRS Form 8928 to report excise taxes resulting from violations of the new rules.   


Notice 2011-1 also requests additional public comments on various specific issues raised in comments submitted in response to Notice 2010-63.  Notably, the Notice requests comments on the application of the “benefits” nondiscrimination rules to the rate of employer contributions toward the cost of coverage (or required employee contributions) and the duration of eligibility waiting periods. 



Got a health-care reform question?  You can ask YOUR health-care reform legislation question online at  

You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at     


Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.   

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm’s Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.  


PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.