Partner Edward Rayner Tells SHRM Pay Raises Likely to Offset Reductions in Health Care Contributions for Executives
Partner Edward Rayner, Chairman of Pryor Cashman’s Executive Compensation, ERISA and Employee Benefits Group, was interviewed by SHRM for its November 15, 2010 article, “Pay Raises Likely to Offset Reductions in Health Care Contributions for Executives.”
According to Rayner, executives are likely to receive boosts in their pay because their health insurance benefits will be reduced as a result of the nondiscrimination requirement of the Patient Protection and Affordable Care Act. That’s because employers covered by the nondiscrimination requirement no longer can pay executives more of their health insurance premiums than other employees, and probably will decide to provide executives with the same health insurance as everyone else. Employers may try to make up the lower health insurance contributions to executives by raising their pay to make up the difference.
Rayner stated that the nondiscrimination requirement, effective for plan years beginning on or after September 23, 2010, is likely to soon apply to most employers with health insurance plans because the grandfathered protection won’t last long for most businesses, with 90% of large U.S. companies expect to lose grandfathered status by 2014. Once there’s no more grandfathered protection, plans will have to comply with the nondiscrimination requirement.
And Rayner thinks the most likely scenario once the nondiscrimination requirement applies will be that executives and employees will receive the same health care benefits with an increase in salary to the executives to put them where they were. That way, executives can purchase supplemental insurance policies on their own, if they choose to, or contribute more to their flexible spending accounts and health savings accounts.
If executives were offered a different health insurance plan from the rest of the workforce, such as a preferred provider organization plan (PPO), while the rest of the employees have a health maintenance organization plan (HMO), it’s likely that a company that must satisfy the nondiscrimination rules will switch everyone to the HMO, Rayner told SHRM. In that case, an executive’s doctor might not be in the HMO and available only if he or she goes outside the plan.
Again, Rayner said employers probably will make up the difference to employers by raising their salaries so that it’s a wash. That’s because he thinks the safest approach is to have the same plan for everyone.
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