15
Affordable Care Act leaves
school districts in legal limbo
It has been a common practice in Illinois school
districts for school administrators to receive greater
health insurance benefits than other school district
employees. Usually, the Board of Education pays the
full cost of the administrator’s health insurance
premiums for both single and family coverage while
the other employees only receive paid or partially
paid single coverage. With the passage of the
Affordable Care Act (“Act”), school boards could be
forced to end this practice.
Specifically, the Act now prohibits employer-
sponsored, fully insured group health plans from
discriminating in favor of highly compensated
individuals with regard to eligibility to participate in the
health plan and the level and type of benefits
provided. Thus, a health plan where school
administrators have their insurance premiums paid at
a higher rate than other employees runs a potential
risk of being found to be discriminatory under the Act.
If an insured health plan is found to be discriminatory,
the penalty to the employer is equal to $100 per day,
per individual discriminated against, as well as
possible injunction.
Although
the
nondiscrimination
provision of the Act
was to take effect
against
non-
grandfathered,
insured plans as
early
as
2010,
fortunately the IRS
announced that it
would not enforce
the nondiscrimination
rules on group insured plans until the release of
further guidance. Accordingly, because enforcement
of this nondiscrimination provision on group insured
plans is delayed, with what we know right now, a
school district could continue to provide
administrators with district-paid insured plan
premiums that exceed that of other employees.
Please note, the law is not clear on whether the
disparate payment of premiums for highly
compensated individuals will even be part of the test
for nondiscrimination. It is anticipated that the IRS
will answer this question in future guidance.
Still, several third-party administrators and
insurance companies are advising school districts to
act immediately to equalize the employer-paid
insurance premiums of all employees. As a result,
many school districts are not waiting for further
guidance and are heeding this advice and acting now.
It is vital, however, that school districts and
administrators proceed with caution when attempting
to equalize the payment of premiums. Such
adjustments can have long-term TRS and IRS
implications. For example, decreasing non-TRS
creditable employer-paid insurance premiums could
be considered conversion by TRS and result in a
significant impact at the time of retirement. As an
alternative, some districts are simply adding re-
opener language to administrator contracts -- but this
approach also could be problematic due to pending
pension reform legislation.
It is important to note that even prior to the
passage of the Act, this nondiscrimination rule
applied to self-insured health plans and, unlike the
Act’s nondiscrimination provision, the self-insured
rule’s enforcement has not been delayed. If a self-
insured plan is discriminatory, the penalty is full
taxation of the employee of the benefits received
under the plan. Thus, it is critical that school districts
find out if they are self-insured or fully insured. If the
plan is a self-insured plan and is discriminatory,
contact with legal counsel should be initiated
immediately to discuss options.
In the end, consultation with legal counsel on
behalf of the school district and impacted employees
is not only highly recommended, it is crucial.
SARA BOUCEK,
IASA Associate
Director/ Legal
Counsel and
BARBARA A.
ERICKSON,
a
partner at Hodges,
Loizzi,
Eisenhammer
Rodick & Kohn LLP, represents school districts,
municipalities, and park districts in all areas of the
law. Ms. Erickson’s primary concentration is on
employee benefits, with an emphasis on state and
federal pension laws, health insurance, including the
implications of the
Affordable Care Act
, and deferred
compensation.
“It is vital, however,
that school districts
and administrators
proceed with
caution when
attempting to
equalize the
payment of
premiums.”
