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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

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Allowable discrimination in a health plan

originally posted: 11/22/2006  reposted: 3/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: I have a group that has 5 Board of Directors that receive a 1099 and an additional 25 W2 employees. Can I class out the 1099 group under a HRA and allow different benefits. Would they even be eligible under a Health Reimbursement Arrangement?

A: There are usually ways to accomplish this without violating non-discrimination rules for employee benefits, but it requires a look at the whole employee benefits picture for the business. Remember that health insurance can always be provided on a discriminatory basis regardless of health plan design. The only real concern is non-insured benefits and this allocation goal is usually accomplished by plan design factors rather than outright "class out" as mentioned. Also, keep in mind that employee benefit plans are designed for employees. Directors may be included but the eligibility and tax treatment is a separate issue outside of the question that you have specifically posed. Since the directors receive a Form 1099, we presume they are functioning as independent contractors performing some task for the business for compensation. If this is the case, they can be treated as employees in most employee benefit plans.

Some health plans allow independent contractors to be covered as employees.

More resources:

"Who Is Your Employee?"