Insurance- Exception to the Rule Against Experience Rating

2.4.0          

The final regulations retained the special rules of application relating to insurance contracts that were set forth in the proposed regulations.

A special rule is provided in the case of a plan maintaining an experience rating arrangement with respect to a group of participating employers or a group of employees covered under the plan (a rating group). Under that rule, a plan will not be treated as maintaining an experience rating arrangement with respect to an individual employer merely because the cost of coverage under a plan with respect to the employer is based, in whole or in part, on the benefits experience or the overall experience of a rating group that includes the employer or one or more of its employees, provided that the employer does not normally contribute more than 10% of all contributions with respect to that rating group. The effect of this rule is to allow the plan to provide for experience rating on a planwide basis or on the basis of a subset of the employers within the plan, provided that the subset of employers is not overweighted by the experience of one employer and is not defined based on the experience of the employers.

Bisk Point:              The Service simply looks at the substance of each plan, not its form. Therefore, is an overcontribution would affect the benefits paid or the cost of coverage for the employer that made the overcontribution that automatically renders the plan an experience rating arrangement. However, where the costs and benefits remain fixed for all plan participants, there are no restrictions in how to structure the cost of coverage or the benefits package, even if it is based on an employee’s actual experience. However, as seen in the next section, other restriction may apply.