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Consequences for Noncompliance

The Affordable Care Act (ACA) amended provisions of the Public Health Services Act (PHSA) to incorporate the many coverage mandates that are required under the ACA (e.g., coverage of preventive services or the prohibition on annual limits on the dollar value of essential health benefits).  These mandates were also incorporated by reference into the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC).

As a result, the consequences for failing to comply with these mandates differ depending upon the applicable statute because the enforcement mechanisms under PHSA, ERISA and the IRC are different.  The following outlines the different enforcement mechanisms.

Enforcement under IRC section 4980D

IRC section 4980D imposes a $100 per day excise tax with respect to each individual and each violation.  The tax will not apply if:  (1) the plan sponsor can demonstrate that it did not know and, in exercising reasonable diligence, would not have known there was a failure to comply, or (2) the failure was due to reasonable cause rather than willful neglect and was corrected within 30 days of discovering the failure.

The minimum tax is $2,500 per individual when the plan does not correct the violation before receiving notice from the Internal Revenue Service (IRS).  However, the minimum tax increases to $15,000 per individual if it involves more than a de minimis violation.  The maximum tax for unintentional failures is 10 percent of the aggregate amount incurred during the previous tax year or $500,000, whichever is less.

In general, the provisions of IRC section 4980D apply to private sector employer-sponsored plans and church plans but not to government plans.  For single employer plans, the plan sponsor is liable for the excise tax.  For multiemployer plans, the tax is imposed on the plan.

Enforcement under ERISA

Private sector employer-sponsored plans and group health insurers that are subject to ERISA may be subject to enforcement actions by the U.S. Department of Labor (DOL) for failure to comply with the ACA mandates.  However, these enforcement mechanisms do not apply to local and state government group health plans since they are not subject to ERISA.

In general, the DOL may impose civil penalties for failing to provide documents as part of an audit and may file civil actions against group health plans to compel compliance with the ACA mandates.

Enforcement under PHSA

Local and state governmental plans governed by PHSA may be subject to penalties for failing to comply with the ACA mandates.  The Department of Health and Human Services (HHS) may assess civil penalties of up to $100 per day against the plan or sponsoring employer.  Similar to the excise tax under IRC section 4980D, penalties will not apply to failures that are due to reasonable cause and are corrected within 30 days or to failures that were not discovered despite the exercise of due diligence.