New Excise Tax Reporting Effective January 1, 2010 for Violations of COBRA, HIPAA and Other Health Plan Mandates

Effective January 1, 2010, employers who sponsor group health plans now will be required to report and pay excise taxes for failing to satisfy certain federal group health plan mandates, unless timely corrected. The Internal Revenue Service (IRS) issued final regulations regarding new reporting requirements. Starting in 2010, employers (and certain third parties) must self-report and pay excise taxes for failing to comply with the following:

  1. COBRA
  2. HIPAA portability, access, renewability and nondiscrimination rules
  3. The Genetic Information Nondiscrimination Act (GINA)
  4. Mental health parity rules
  5. Minimum hospital stays under the Newborns’ and Mothers’ Health Protection Act
  6. Continued group health plan coverage of postsecondary dependent children on a medically necessary leave of absence under Michelle’s Law
  7. Health savings account (HSA) comparable employer contributions rules, see IRS Regs
  8. Archer medical savings account (MSA) comparable employer contributions rules, see IRS Regs

Affected parties must report the excise taxes on Form 8928, “Return of Certain Excise Taxes under Chapter 43 of the Internal Revenue Code.” Failure to file Form 8928 and pay excise taxes may lead to the imposition of penalties and interest. Form 8928 is available on the IRS Web site.

Employer Practice Points

Dipa N. Sudra of Davis Wright and Tremaine, LLP suggests;

Employers should have procedures in place to identify potential excise tax issues; and relevant employees, such as human resources personnel, should be familiar with the excise taxes noted above. Employers should consider creating checklists of potential excise tax violations and periodically review the checklists.

For example, employers should work with their advisors or COBRA administrators to ensure that there are no COBRA violations.

Employers must also ensure that relevant employees are familiar with recent changes, such as:

  • The two new events under HIPAA permitting special enrollment in a group health plan for loss of eligibility for coverage, or entitlement to a state premium assistance subsidy, under Medicaid or a state child health plan. (Employers should watch out for model notices expected to be issued in 2010 regarding these new events, and should update the notice of special enrollment rights given to employees.)
  • Prohibitions under GINA against using genetic information for underwriting or certain other purposes. In particular, note that there may be violations of GINA if genetic information was obtained before, but used after, its effective date (such as information collected as part of a health risk assessment).
  • Parity requirements for medical benefits and mental health or substance use disorder benefits.
  • Michelle’s Law.
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