An employer that maintains a group health benefit plan for its employees may be subject to excise taxes if the plan fails to meet certain Internal Revenue Code requirements.

Historically, these excise taxes have received little attention and been subject to few enforcement efforts. However, recently issued final regulations under the Internal Revenue Code aim to change that.

Beginning January 1, 2010, plan sponsors (plan administrators for multiemployer plans) will need to self-report excise tax liabilities for failure to meet certain health plan requirements, including requirements under:

  • COBRA
  • HIPAA's portability and nondiscrimination rules
  • Newborns' and Mothers' Health Protection Act
  • Mental Health Parity and Addiction Equity Act
  • Health savings account comparability provisions
  • Michelle's Law
  • Genetic Information Nondiscrimination Act (GINA)

For example, if a group health plan offers participants a discount for completing a health risk assessment that inappropriately requests information about a participant’s family medical history (in violation of the GINA privacy requirements), the plan will be subject to an excise tax. Effective January 1, 2010, the plan sponsor will be required to report that excise tax on IRS Form 8928 and to pay that tax at the time it is reported. A failure to meet these reporting and payment requirements could result in the assessment of penalties and interest.

To meet these new requirements, plan sponsors will need to establish administrative processes and systems for identifying violations and tracking their resolution. Plan sponsors who have outsourced functions that might subject the sponsor to excise taxes should review applicable vendor contracts and, as appropriate, evaluate a vendor's processes for compliance.

Self-reporting and payment of an excise tax will not be required when an exception to the excise tax rules applies. For example, a failure to comply with COBRA, GINA, and a number of other requirements will be excused if discovery of the failure was delayed (despite the exercise of reasonable diligence) and prompt and appropriate correction is made upon discovery.

Ballard Spahr's Employee Benefits and Executive Compensation Group regularly assists employers in designing and implementing group health benefit plans that comply with regulatory requirements. If you have questions about how these excise tax reporting requirements might affect your plan or need assistance in ensuring compliance, please feel free to call Clifford J. Schoner (215.864.8626 or schonerc@ballardspahr.com), Edward I. Leeds (215.864.8419 or leeds@ballardspahr.com), or any member of the group.


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