IRS Requires Employers to Report COBRA or HIPAA Violations

January 23, 2011

The Internal Revenue Service (IRS) requires that all employers MUST self-report to the IRS on Form 8928 any COBRA or HIPAA violation! Basically employers are required to turn themselves in if a violation occurs. If they do not report there is an additional $1000 penalty. THIS IS REQUIRED EVEN IF THE VIOLATION WAS CORRECTED.

This requirement, along with the hiring of 15,000 additional IRS agents shows that the government is ramping up the enforcement of these federal laws.
1) Failure to provide the required HCR Notices:
PPACA, reforms are added to the HIPAA portability subparts of ERISA by the PHSA mandates which require insures and plan sponsors to properly notify all eligible GHP employees on or before the first day of the GHP. Liability for failure to comply with reforms is the same as violating HIPAA portability under ERISA/ IRS CODE:
a. Specific performance under ERISA;
b. $100/day penalty for every employee that is affected by violation under IRC until the violation is corrected;
c. Requires Mandatory Self-Reporting and tax for violation;
d. Failure to self-report, even if violation is corrected will result in additional fines/penalties (Form 8928)
2) Testing for FI Non-Grandfathered Plans:
Because the nondiscrimination requirement appears in PHSA §2716 and not in Code §105(h),failure to comply will not result in adverse tax consequences to HCIs. Instead, the penalties for failure to comply with the PHSA’s health care reform provisions will apply, including excise taxes under the Code (imposed on the plan sponsor) and civil enforcement mechanisms under ERISA. The
Patient Protection and Affordable Care Act (PPACA) extends the nondiscrimination requirements of the Internal Revenue Code to most insured group health plans, except for “grandfathered” plans that were in existence on March 23 when PPACA was signed into law.
Plans that run afoul of the rules face excise taxes of $100 per day for each employee whose benefits are not in compliance, up to 10% of the cost of the group health plan or $500,000, whichever is less. ( See IRS 2010-63 issues 9/21/2010) for penalties
PHSA amended the HIPAA portability rule which is governed by ERISA and a HIPAA violation is one of the violations in the IRS Requires Reporting and Excise Taxes for Health Plan Noncompliance for self-reporting violations on form 8928.
Last but not least – Remember the fine of $1000 for non-compliance of the 4 page Summary of the Health plan that begins in 2012? That means that this upcoming year – 2011 – is when Employers & Providers need to make sure the GHP is in place in time for preparation of this Summary. If they have ERISAEdge then they will be in compliance of this new PPACA regulation.