Report Outlines Healthcare Reform's Effect on Executive Compensation

A report by SullivanCotter, a consulting firm with expertise in healthcare executive compensation, reveals how the healthcare reform law may affect executives' benefits agreements.

Section 125 of the Internal Revenue Code provides a framework for employee tax-advantaged benefits. Within Section 125 is a prohibition that disallows discrimination in favor of highly compensated individuals. This poses a potential risk for employers who provide their executives with "richer" health benefits than other employees. For instance, executives are often provided continued healthcare coverage through the severance period, a benefit that is not typically offered to other employees.

Another point of clarification healthcare executives and employers may not be aware of is that the healthcare reform law no longer includes exceptions to the nondiscrimination requirements. Before the healthcare reform law was enacted, the nondiscrimination requirements for highly compensated individuals only applied to self-insured plans — not fully insured plans.

However, the reform law's nondiscrimination requirement now applies to both types of plans and calls for stiff penalties for any violations under fully insured plans — non-compliant plans are subject to a $100 excise tax per participant discriminated against (employee not offered the same benefit). Noncompliance may also lead to civil action.

For these reasons, employers should review benefit and severance arrangements with their executives. It is important to note that the reform law's nondiscrimination requirement only applies to non-grandfathered fully insured plans and will not go into effect on the previously scheduled Jan. 1, 2011 date. Experts advise plans to be ready to be compliant by Jan. 1, 2012.

Read the SullivanCotter report, written by Senior Consultant Mike Gaal, about healthcare reform's impact on executive compensation.

Related Articles on SullivanCotter:
5 Factors Affecting Physician On-Call Pay
Rural Physicians See Higher Average Compensation Than Those in Cities, Suburbs
Roles and Compensation of Physician Leaders in Hospitals Growing

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