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As most people know by now, many of the rules governing health plans have been changed – in some cases drastically – by The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (the "Act"). However, not everyone has considered that for this purpose long-term care ("LTC") benefits are considered "health benefits" and in some cases may also need to be addressed.
Employers increasingly use LTC policies as a cost-effective benefit for their executives who are approaching retirement age. Such benefits are usually tax-free to the executive, while the employer is entitled to deduct the cost of the policy.
One of the changes made by the Act is to apply nondiscrimination requirements to insured health plans. Accordingly, a fully insured LTC policy for only one (or for a few) senior executive will be a discriminatory health plan and the employer will be subject to an excise tax of $100 per day per covered executive, unless either the benefit qualifies as "excepted" (see below), or the policy is "grandfathered." (See our Legal Alert dated June 23, 2010 regarding "grandfathered" plans, which can be found at http://www.fordharrison.com/shownews.aspx?Show=6300.)
Long-term care benefits are "excepted" from the application of most of the Act's provisions, including the nondiscrimination requirement, if either (i) the benefits are provided under a separate policy or contract, or (ii) the benefits are not an "integral part" of a covered health plan. Most LTC benefits are in fact provided under separate insurance policies, and so will be "excepted." But if you have a policy that combines LTC benefits with other health benefits, so that the LTC is an "integral part" of the plan, the nondiscrimination requirements will apply.
In those cases, the existence of the excise tax will change the economics of the benefit. For example, an LTC policy will often be structured to require payment of premiums over a 5- or a 10-year period; if the benefit is subject to discrimination requirements, and is discriminatory, the excise tax would be applied based upon the number of days the policy is maintained by the employer. This could result in quite a significant excise tax liability; for example, 10 years, @$100/day would total $365,000.
Employers would be well-advised to familiarize themselves with the health care reform legislation, including specific issues that potentially affect them, such as the extension of nondiscrimination requirements to insured plans and which plans may be excepted, in order to be better able to make necessary decisions about their benefit programs. Ford & Harrison's Employee Benefits group can help you do this. If you wish to discuss how healthcare reform affects you, please contact the author of this Alert, Jeffrey Ashendorf, firstname.lastname@example.org, any member of Ford & Harrison's Employee Benefits group, or the Ford & Harrison attorney with whom you usually work.
You may also visit the health care reform tab of the Ford & Harrison website, http://www.fordharrison.com/HealthcareReform.aspx, for more helpful resources and tools on health care reform.