Second Opinions | Published in March 2012

Keeping in Line

PPACA coverage mandates penalties and eligibility waiting periods

By PLANSPONSOR staff | March 2012
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Illustration by Niv Bavarsky

What are the penalties for violating the PPACA waiting period limitation and the other PPACA coverage mandates? 

The Patient Protection and Affordable Care Act (PPACA) requires that group health plans modify their coverage to comply with the mandates set forth in Subtitle A and Subtitle C of Title I of the Act. These provisions generally amend the Public Health Services Act (PHSA) and are incorporated by reference into § 715 of the Employee Retirement Income Security Act of 1974 (ERISA) and § 9815 of the Internal Revenue Code of 1986 (the Code). Among other things, group health plans are required to extend coverage to adult children until the age of 26 (PHSA § 2714), must eliminate certain annual limits and all lifetime maximum limits on coverage of essential benefits (PHSA § 2711), and, beginning in 2014, will be prohibited from establishing waiting periods that exceed 90 days (PHSA § 2708).

By adding these coverage mandates to the PHSA, ERISA and Code, Congress effectively allocated enforcement authority for PPACA’s insurance market reforms and coverage mandates between the Department of Health and Human Services (HHS), Department of Labor (DoL), and the Internal Revenue Service (IRS). In addition, participants have a private right of action to enforce PPACA. More specifically, the PPACA coverage mandates are enforceable as follows:

Code/IRS: The IRS has the authority to assess excise taxes upon group health plans that do not comply with the coverage mandates. For group health plans, the penalty tax on a noncomplying plan sponsor is $100 per day of noncompliance per affected individual, and the violations must be self-reported to the IRS on IRS Form 8928. The tax may be higher where violations occurred or continued during a period under IRS examination or where the violations are more than “de minimis.” The tax does not apply where the failure was based on reasonable cause and not to willful neglect and the failure is corrected within 30 days after the person knew or should have known that the failure existed. Even if not corrected, if the failure was due to reasonable cause and not willful neglect, the tax imposed may not exceed the lesser of 10% of the amount paid to provide medical care during the taxable year or $500,000. In the case of a multiemployer plan, the tax is levied upon the plan itself. There is an exception for small employers with between 2 and 50 employees.

ERISA/DoL: DoL may enforce the coverage mandates against group health plans by bringing a civil action to enjoin a noncompliant act or practice or for appropriate equitable relief under Part 7 of ERISA. ERISA also provides a private cause of action by which participants, beneficiaries and fiduciaries may sue plan fiduciaries to enforce Part 7 of ERISA (into which the PPACA reforms are incorporated by reference).

PHSA: There may be civil money penalties of $100 per day per individual discriminated against for each day the plan does not comply with the coverage mandate (capped at 10% of the aggregate amount paid or incurred by the employer during the preceding taxable year for the group health plan or $500,000, whichever is less). This penalty appears to be limited in this context to nonfederal governmental group health plans.