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Identifying Self-Funded Testing Groups

Navigating the world of self-insured health plans can be a bit like piecing together a puzzle. One important aspect to consider is nondiscrimination testing. Testing is an essential requirement for compliance with Code Section 105(h) to ensure that the plan is not discriminating in favor of  Highly Compensated Individuals (HCIs) as it pertains to eligibility or benefits. This testing must be done annually, and for calendar-year plans who have yet to complete testing, it is time to review your benefits before we close out the year.   

When testing, it is key to create testing groups to accurately evaluate the true operations of the plan .  Testing groups are typically determined by identifying certain criteria exclusive to certain employee classifications:

  1. Eligibility Requirements:
    One key factor in identifying testing groups is differences in eligibility requirements. Consider the number of hours employees must work or their waiting period before becoming eligible for benefits. For instance, if management can access benefits on their hire date while other employees must wait 60 days, you'll have two distinct testing groups.
  2. Coverage Options:
    Another crucial aspect is variations in coverage options. Some employees might be offered different plans. For example, service employees might have access only to a low-cost plan, while administration employees can choose between high and low-cost plans. This situation creates two testing groups.
  3. Cost of Coverage:
    The cost of coverage is another differentiator. Depending on their roles or classifications, employees might bear different percentages of the coverage cost. For instance, warehouse employees may pay 100% for family or dependent coverage, corporate employees pay 50%, and executives pay nothing. This results in three testing groups.
  4. Tax-Advantaged Benefits:
    Consider if there are any significant differences in how a particular group of eligible employees is treated concerning tax-advantaged benefits. This can also impact the formation of testing groups.
Combining Groups

Sometimes, combinations of the above factors can lead to numerous testing groups. However, if the differences between these groups are not significant, it's possible to combine them into a single testing group. For example, if employees in New Jersey pay just $5 more per month than those in New York for the same coverage, this insignificant difference may not require separate testing groups.

Identifying testing groups in self-insured health plans is essential for compliance with regulatory requirements. By examining eligibility requirements, coverage options, costs, and other factors, you can determine the appropriate number of testing groups for your plan. Remember, the goal is to ensure fairness and equality in benefit distribution among your employees while staying in line with the law.

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