If a group decides to cancel group coverage and get employees to sign-up for individual coverage, can a group start a carve-out plan for owners and key executives?

A plan cannot discriminate in favor of highly compensated individuals as to eligibility to participate; and the benefits under the plan cannot discriminate in favor of highly compensated individuals.  Highly compensated individual is defined as (1) one of the 5 highest paid officers; (2) a shareholder who owns more than 10 percent in value of the stock of the employer; or (3) among the highest paid 25 percent of all employees.

However, please be aware that on September 13, 2013, the IRS and the DOL issued guidance 2013-54 (“guidance”) on the application of certain ACA provisions on HRAs, reimbursement arrangements or employer payment plans, and health FSAs.  Due to the pouring in of questions regarding the guidance, the IRS issued a clarifying FAQ on May 13, 2014.  However, the guidance is complex and many questions still abound.

The guidance changes the landscape for certain employer-sponsored arrangements in that arrangements that facilitate the pre-tax payment or reimbursement of premiums for individual medical coverage for active employees are no longer permissible.  HRAs and other similar defined contribution arrangements for active employees are also impermissible unless they are “integrated” with an employer’s group health plan or the reimbursement under such arrangements are limited to retirees or certain excepted benefits.