Group Health Plan Penalty Reference Summary

GROUP HEALTH PLAN PENALTY REFERENCE SUMMARY

Note: This reference document was last updated September 2024.

Penalties and enforcement information are subject to change.

The following information is not intended to be exhaustive but is meant to highlight the possible consequences of noncompliance with certain employer-sponsored group health plan obligations. Governing Agencies reserve the right to assess penalties for multiple violations and may determine penalties based on severity of the violations, plan member impact, and willful negligence. Note that in certain situations persons or agencies can make use of the legal system and ﬁle lawsuits. This topic is beyond the scope of this memo.

ACA PENALTIES OVERVIEW

EMPLOYER SHARED RESPONSIBILITY PAYMENT (ESRP) – Two parts. Applicable Large Employers Offer MEC and meet Affordable/Minimum Value requirements or face exposure to an ESRP under Section 4980H. The IRS treats the ESRP amount as an excise tax.

ESRP	2023	2024	2025
4980H(a) ESRP	MONTHLY	MONTHLY	MONTHLY
*(aka “sledgehammer”)*	$240.00 per month	$247.50 per month	$241.66 per month
	for all ACA full-time	for all ACA full-time	for all ACA full-time
Failure to Offer MEC to 95% of Full-Time Employees and dependents, and at least 1 Full-Time employee obtains Premium Tax Credit on Exchange	employees ANNUALIZED	employees ANNUALIZED	employees ANNUALIZED
*Calculation is monthly excise tax multiplied by all Full-Time employees MINUS the first 30 for free	$2,880*	$2,970*	$2,900*
4980H(b) ESRP	MONTHLY	MONTHLY	MONTHLY
*(aka “tack hammer”)*	$360.00 per month	$371.66 per month	$362.50 per month
	for each ACA full-time	for each ACA full-time	for each ACA full-time
Failure to Offer Minimum Value or ACA Affordable Coverage and at least 1 Full-Time employee obtains Premium Tax Credit on Exchange	employee with Premium Tax Credit	employee with Premium Tax Credit	employee with Premium Tax Credit
	ANNUALIZED	ANNUALIZED	ANNUALIZED
*Calculation is monthly excise tax multiplied by months a full-time employee received subsidized Exchange coverage.	$4,320*	$4,460*	$4,350*

INFORMATION RETURN PENALTIES FOR 1094 and 1095 FORMS – Applicable Large Employers and employers with self-insured coverage annually report health coverage information using Forms 1094 and 1095 or face exposure to civil penalties under Section 6721 and 6722. These penalties also apply to employers who fail to file electronically as required.

*Note: failure to file and furnish can result in double penalties!!

APPLICABLE YEAR	*Corrected within 30 days* after due date**	Corrected prior to August 1	*Corrected after* August 1**	Intentional neglect
Tax Year 2024	$60 per return	$120 per return	$310 per return or	$630 per return or
– Filed in			unfurnished 1095	unfurnished 1095
2025			statement	statement
			$3,783,000 Max	-No Max or Limit

Tax Year 2023	$50 per return	$110 per return	$290 per return or 1095	$580 per return or
– Filed in			unfurnished statement	unfurnished 1095
2024			$3,532,500 Max	statement
				-No Max or Limit

Information return penalties | Internal Revenue Service (irs.gov)

CAFETERIA PLAN/IRC SECTION 125 PENALTIES

POSSIBLE VIOLATIONS:

Qualification Mistake
- No formal plan documents adopted
Operational failure
- Not following plan terms
- Administrative errors & Fiduciary failures
Failing non-discrimination compliance rules
Failure to respond to plan document requests

Consequences that flow from violating the Code could include the following:

disqualification of the program;
imposition on the employer of employment tax withholding liability and penalties with regard to all reimbursements paid under the program;
imposition on the employee of employment and income tax liability and penalties with regard to all reimbursements received under the program; and
reversal of the transactions that triggered

While the IRS may have the power to impose the maximum penalties for an infraction, what it might actually do depends on the facts and circumstances. In less egregious cases, the IRS might only impose a percentage of the total income and employment tax liability.

COBRA VIOLATION PENALTIES

PENALTY TYPE	AMOUNT
IRS Excise Tax Penalty	$100 per day for each qualified beneficiary ($200 if more than one family member is affected)
DOL ERISA Penalties	$110 per day
Court-awarded damages, attorneys fees and interest in suits to recover COBRA coverage	$$$ Undefined & Unlimited Legal and settlement costs from plan participant and beneficiary lawsuits attempting to recover statutory penalties and COBRA coverage (discretionary amounts awarded by courts per case)

ERISA PENALTIES

Note ERISA has been around since 1974 and there is a lot of litigation surrounding this body of law as well. We have only highlighted a very few potential areas of risk and only some penalties assessable by EBSA (DOL).

Various penalties can be assessed and applied by the DOL.

Failure to File Form 5500
Failure to respond to requests for information
Prohibited transactions and other breaches of ﬁduciary duties

DOL PENALTIES*
VIOLATION	01/15/23 – 08/07/24	Effective 08/08/24
Failure to file Form 5500 (1)	$2,586 per day
MEWA failure to file (M-1)	$1,881 per day
Willful failure to furnish Medical SBC	$1,362 per failure	$1,406 per failure
Failure to furnish information requested by DOL	$184 per day Capped at $1,846 (per request)
Violation of Medicare Secondary Payer (MSP) Rules a) Incentivizing Employees to enroll in Medicare versus Group Health b) Failure to report where group health plan is or was primary	$11,162 per violation $1,428 per violation	$11,524 per violation $1,474 per violation
Fiduciary Breach	20% of “applicable recovery amount” in addition to settlement agreement costs

*subject to annual adjustments typically made by January 15th of each year.

(1) Delinquent 5500 Filers Program Option: $10 per day it is late (from due date to being ﬁled), not to exceed $2000 per plan. If submissions are related to more than one delinquent ﬁling, maximum penalty is $2000 per plan, not to exceed $4000.

HIPAA VIOLATIONS (effective August 8, 2024)
	JUDGEMENT	MINIMUM PER VIOLATION	MAXIMUM PER VIOLATION	ANNUAL PENALTY CAP
Tier 1	Lack of Knowledge	$141	$71,162	$2,134,831
Tier 2	Reasonable Cause	$1,424	$71,162	$2,134,831
Tier 3	Willful Neglect (corrected)	$14,232	$71,162	$2,134,831
Tier 4	Willful Neglect (not corrected within 30 days)	$71,162	$71,162	$2,134,831

**State Attorney Generals can issue additional ﬁnes for HIPAA violations up to a maximum of $25,000 per violation per category, per year.

2024 Penalties for HIPAA Violations – The HIPAA Guide

PCORI PENALTIES

Applicable to self or level funded plans (to include HRAs) only.

FAILURE TO FILE & PAY:

Any discovery of missed or overlooked reporting of or payment of PCORI fees by the due date of July 31st annually should be immediately corrected by ﬁling the IRS Excise Tas Form 720 and paying the fee due for the appropriate tax year. If an IRS PCORI penalty letters is received by the IRS after you ﬁle the late return, be sure to reply and respond within the appropriate timeframe with an explanation and determine if you might meet reasonable-cause criteria.

The penalty for failure to file is assessed at 5% of the amount due per month (with a cap of 25% of the total amount due).

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Legal Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. While these resources are provided in consultation with federal and state statutes, please be aware that additional applicable regulations, laws, and legal considerations may exist. Therefore, if you have speciﬁc questions or concerns, please consult legal counsel. Please also be aware that the information provided is current as of this date and the information contained herein is subject to change.

Group Health Plan Penalty Reference Summary