Affordable Care Act (ACA) Violations – Penalties and Excise Taxes
This Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers
should contact legal counsel for legal advice.
© 2014 Zywave, Inc. All rights reserved. EM 9/14
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A reporting entity that fails to comply with the Section 6055 or Section 6056 reporting requirements may be subject
to the general reporting penalties for failure to file correct information returns and failure to furnish correct payee
statements under Code Sections 6721 and 6722. In general, these penalties are $100 for each return or
statement with respect to which there is a failure, up to a maximum of $1.5 million in a calendar year. Some relief
applies if the failure is due to reasonable cause and not to willful neglect.
For returns and statements filed and furnished in 2016 to report offers of coverage in
2015, the IRS will not impose penalties on reporting entities that can show they made
good faith efforts to comply with the information reporting requirements. This relief is
provided only for incorrect or incomplete information reported on the return or
statement, including Social Security numbers, TINs or dates of birth. No relief is
provided for reporting entities that do not make a good faith effort to comply with
these reporting requirements or that fail to timely file an information return or
statement.
PCORI FEES
Health insurance issuers and self-funded group health plans must pay fees to finance comparative effectiveness
research. These research fees are called Patient-centered Outcomes Research Institute fees (PCORI fees). The fees
apply for plan years ending on or after Oct. 1, 2012. The PCORI fees do not apply for plan years ending on or after
Oct. 1, 2019. For calendar year plans, the research fees are effective for the 2012 through 2018 plan years.
The PCORI fees are due by July 31 of the calendar year following the plan year to which the fee applies.
For plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans), the research fee was $1 multiplied
by the average number of lives covered under the plan. For plan years ending on or after Oct. 1, 2013, and before
Oct. 1, 2014, the fee is $2 multiplied by the average number of lives covered under the plan. For plan years ending on
or after Oct. 1, 2014, and before Oct. 1, 2015, the fee amount was adjusted to $2.08 under IRS Notice 2014-56. For
plan years ending on or after Oct. 1, 2015, the PCORI fee amount will grow based on increases in the projected per
capita amount of National Health Expenditures.
Since the PCORI fee is considered a tax that is reportable on IRS Form 720, any related penalty for failure to file a
return or pay a tax likely applies. Under Code Section 6651, the penalty for failing to file a return or pay a tax is the
full amount of the tax, plus possible excise taxes ranging from .5 percent to 25 percent of the original tax. However,
there are exceptions to the excise taxes for failures that are due to reasonable cause and not due to willful neglect.
REINSURANCE FEES
Health insurance issuers and self-funded group health plans must pay fees to a transitional reinsurance program for
the first three years of health insurance Exchange operation (2014 to 2016). The fees will be used to help stabilize
premiums for coverage in the individual market. Fully insured plan sponsors do not have to pay the fee directly.
Certain types of coverage are excluded from the reinsurance fees, including HRAs that are integrated with major
medical coverage, HSAs, health FSAs and coverage that consists solely of excepted benefits under HIPAA (such as
stand-alone vision and dental coverage). Also, self-insured group health plans that do not use a third-party
administrator for their core administrative functions are exempt from the requirement to make reinsurance
contributions for the 2015 and 2016 benefit years.
The reinsurance program’s fees are based on a national contribution rate, which HHS announces annually. For 2014,
HHS announced a national contribution rate of $63 per enrollee per year. For 2015, the national contribution rate is
$44 per enrollee per year. The reinsurance fee is calculated by multiplying the average number of covered lives by the
national contribution rate.