Leadership Matters August 2013 issue.pub

Affordable Care Act leaves school districts in legal limbo

SARA BOUCEK, IASA Associate Director/ Legal Counsel and BARBARA A. ERICKSON, a partner at Hodges, Loizzi, Eisenhammer

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 “It is vital, however, that school districts and administrators

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. 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.

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

proceed with caution when attempting to equalize the payment of premiums.”

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

15