If you focus strictly on the Affordable Care Act (ACA) health care reform law’s free-rider penalties for not providing full-time employees with health insurance, or not providing insurance that’s affordable and offers minimum value, you’re missing the bigger picture. The ACA also authorizes the IRS to impose a $100-a-day excise tax for a host of other plan failures. And, while the employer mandate and its associated free-rider penalties are postponed until at least next year, these penalties are not.
$100 a day, every day. Liability for the $100 daily excise tax depends on whether your group plan is a grandfathered (i.e., it hasn’t changed since March 23, 2010) or a non-grandfathered plan, since grandfathered plans don’t have to comply with substantial portions of the ACA.
The excise tax applies to all group plans that continue to:
- Impose pre-existing condition exclusion periods, lifetime limits on the dollar value of coverage and limits on the annual dollar value of coverage
- Have waiting periods that exceed 90 calendar days
- Deny coverage to employees’ adult children without regard to eligibility, by the beginning of the 2014 plan year.
The excise tax also applies to non-grandfathered group plans and grandfathered plans that lose their status if they failed to:
- Comply with the consumer choice provisions, including allowing employees to choose in-network doctors and allowing employees to go to any in-network or out-of-network hospital without prior authorization to receive emergency care
- Establish internal appeals and external review procedures
- Offer free preventive care services
- Timely provide employees with notices associated with the consumer choice and appeals provisions.
PAYROLL PRACTICE TIP: Excise taxes are self-assessed and reported on Form 8928. Why self-assess? If you wait until you’re snagged for an audit, the maximum penalty can increase to as much as $500,000. Key: Excise taxes won’t apply if you had a reasonable cause for the failure.
Suggestion: Review your plan to ensure that it’s ACA-compliant. Fix errors within 30 days, so you can assert reasonable cause for the plan failure.