Penalties for Not Complying with Health Care Reform

Posted by BAS - 03 April, 2014

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Employer-provided group health plans must meet certain requirements to be compliant with health care reform. Some of the health care mandates include:

  • Coverage for adult children up until age 26;
  • No annual or lifetime dollar limits on benefits;
  • No retroactive rescission of coverage;
  • Limits on preexisting condition limitations;
  • Waiting periods limited to 90 days;
  • Coverage for preventive care services;
  • Coverage for approved clinical trials;
  • Certain claim and appeal procedures; and
  • No discrimination based on a health status factor.

If a plan does not follow health care reform mandates, it could be subject to penalties imposed under the Internal Revenue Code, ERISA, and/or the Department of Health and Human Services.

IRC Penalty.

The Internal Revenue Code penalty for violating the Affordable Care Act is $100 per day per individual affected by the violation (Code section 4980D). There is a minimum penalty of $2,500 per individual if the plan does not correct the failure before receiving a notice of examination from the IRS and if the failure continues during the examination. The penalty is increased to a minimum of $15,000 per person if the failure to comply is not de minimis. The maximum penalty is the lesser of $500,000 or 10% of the amount paid or incurred by the employer for group health coverage.

Internal Revenue Code penalties do not apply if the IRS determines that the employer did not know or should not reasonably have known of the failure or if the failure was due to reasonable cause and was timely fixed after becoming aware of the failure.

ERISA Penalty.

If the plan is subject to ERISA, an ERISA penalty may also be assessed. ERISA allows the Department of Labor authority to bring a civil action to correct violation of the law and allows criminal penalties to be assessed on any person who willfully violates ERISA.

A penalty of up to $1,000 per day may be assessed against an employer who fails or refuses to comply with annual reporting requirements.

HHS Penalty.

The Department of Health and Human Services may bring a suit against a government plan or church plan that is not subject to ERISA. Penalties may vary.

Pay or Play Penalty.

In addition to the penalties above, an employer may be assessed a penalty if employer-provided coverage is not affordable and an employee receives subsidized coverage through the exchange. A large employer may also be assessed a penalty if it does not offer coverage to full time employees.

Since penalties for non-compliance can be steep, it is important for employers to review their group health plans to make sure they are complying with the Affordable Care Act. Employers do not want to risk penalties being under the Internal Revenue Code, ERISA or the Department of Health and Human Services.

Topics: Health Care Reform (ACA)


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