Health Benefits for Different Classes of Employees

Can employers design health benefits differently for classes of employees?

Employers may be thinking of providing health plans by ‘employee class’. If so, it is imperative the plan sponsor makes sure the distinctions are communicated to all employees, approved by the insurance carriers and/or stop-loss carriers, and the design complies with Non-Discrimination rules.

Common class distinctions

Geographic region

Hourly vs. salaried

Exempt vs. non-exempt

Type of work performed

Job classification

Contingent workforce

Temps and interns

Full time vs. part-time

Common differences in benefit offerings

Different eligibility conditions

Different waiting period

Limiting health plan options to specific classes

Excluding certain benefits for classes

Dependent eligibility differences by class

Contribution strategies by class

Employers seeking any of these class-based health plan design approaches should address three main issues:

Clearly Communicate Class Distinctions in all Plan Materials;

Confirm Class Distinctions with Insurance Carriers/Stop-Loss; and

Structure the Approach to Comply with Applicable Non-Discrimination Rules.

Employers must take care to remember appropriate guidelines under Section 125 Non-Discrimination Rules that govern employee pre-tax contributions to health plans. These rules ensure that contributions and benefits are nondiscriminatory comparing highly compensated participants and non-highly compensated participants.

Self-funded plan sponsors must also adhere to Section 105(h) Non-Discrimination Rules. These rules were designed to prevent discrimination in favor of highly compensated individuals and are different from Section 125 Non-Discrimination Rules.

See Amwins Connect articles on Non-Discrimination Testing for Fully Insured and Self-Insured plans on our website.

Carriers will normally only comment if they will allow a carve-out by classes or not. The carriers do not provide guidelines on how an employer contributes or offers coverage as this would be part of the Non-Discrimination testing that the employer should do every year.

Upon confirming any such class-based health plan design approach does not present any insurance carrier, stop-loss provider, or non-discrimination concerns, employers should implement the class-based design by clearly communicating the approach to employees in any plan materials addressing eligibility (e.g., SPD, EOC, COC, policy, certificate, open enrollment materials, new hire materials, handbook).

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice or services. Readers should always seek professional advice before entering into any commitments.