by Barbra Rabinowitz, Berry,Odom & Rabinowitz, LLP

Final regulations under the Internal Revenue Code have recently been issued which require group health plan sponsors to self-report the applicable excise tax resulting from a failure to comply with several federal group health plan requirements. While the excise tax liability associated with failure to comply with such requirements is not new, the final regulations now require the plan sponsor/employer to self-report such liability.

Effective January 1, 2010, employers who sponsor group health plans will be required to self-report and be liable for excise taxes arising out of the failure to comply with:

• COBRA

• HIPAA portability and nondiscrimination provisions

• Michelle’s Law

• Mental Health Parity and Addiction Equity Act

• Genetic Information Nondiscrimination Act (GINA)

• Newborns’ and Mothers’ Health Protection Act

This is of particular interest given the plethora of new requirements enacted this year (for example, GINA, Michelle’s Law and the Mental Health Parity and Addiction Equity Act).

The excise tax can amount to $100 per individual harmed per day for failures related to the above mentioned laws. The tax must be reported on IRS Form 8928 and paid at the time of reporting. Generally, the Form 8928 and resulting excise tax would be due on or before the date on which the filer’s federal income tax return is due (without an extension). Failure to self report and pay the excise tax could result in the imposition of penalties and interest by the Internal Revenue Service.

Of course, there are exceptions to the imposition of the tax and the duty to report. With respect to failures to comply with HIPAA portability and nondiscrimination provisions, Michelle’s Law, GINA, the Mental Health Parity and Addiction Equity Act, and the Newborns’ and Mothers’ Health Protection Act, the excise tax would not be imposed if the failure to comply was not discovered after exercising reasonable diligence, or if the failure was due to reasonable cause, provided, however, that the failure is promptly corrected. In this regard, to correct the failure would mean to retroactively undo the failure (if possible) and to place the person harmed by the failure to comply in as good a financial position as he/she would have been had the failure to comply never occurred.

Given the new self-reporting requirements, a third party administrator who performs COBRA administration on behalf of plan sponsors may, in some circumstances, be responsible to report and pay the excise tax in connection with a failure to comply. The excise tax liability can also be imposed on a third party administrator arising out of the failure to comply with the above mentioned federal requirements if the administration agreement between the third party administrator and plan sponsor delegates compliance responsibilities to the third party administrator and/or if there is an indemnification provision contained in such agreement which obligates the third party administrator to hold the plan sponsor harmless in the event there is a failure to comply with assumed compliance obligations.

As employers who sponsor group health plans (and their lawyers) are becoming more savvy and more reliant upon their third party administrators to ensure compliance with federal health plan requirements, it is imperative that the third party administrator review its compliance procedures and its administration agreements to assess its risk and attempt to minimize any potential liability. Periodic compliance training of employees should also be part of a third party administrator’s standard operating procedure.

Again, the final regulations mandating the self-reporting of excise taxes are effective for an IRS Form 8928 due on or after January 1, 2010.

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This entry was posted by Adam V. Russo on Monday, December 28th, 2009 at 1:50 pm and is filed under HIPAA, Mental Health Parity, News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.