Consequences of Non-Compliance in Healthcare: 4 Risks & How to Avoid Them
The High Cost of Healthcare Non-Compliance
Your company HR is running smoothly, benefits are in place, and payroll is handled. Then, out of nowhere, a letter arrives from the IRS. It’s not a courtesy notice — it’s a penalty, a steep one, for failing to meet ACA requirements. And the consequences of non-compliance in healthcare benefits are not to be taken lightly. Maybe it’s a six-figure fine for misclassifying employees. Maybe it’s a lawsuit from a former worker who never received their COBRA notice. Either way, it’s a crisis.
This is the reality of non-compliance in healthcare in the U.S. Many companies don’t realize they’ve made a mistake until it’s too late — until the penalties pile up, the audits begin, and HR is left scrambling to fix the damage. The worst part? These mistakes are preventable.
Let’s talk about how. In this post, we’ll walk through:
- The most common examples of non-compliance in healthcare
- The financial, legal, and operational risks at stake
- How to stay compliant and avoid penalties
Consequences of Non-Compliance in Healthcare: Risks to Know
Regulatory non-compliance is a financial, legal, and operational nightmare. Failing to meet healthcare requirements can lead to:
- Legal Risks – Government investigations, lawsuits, and compliance audits that consume time and resources.
- Financial Penalties – Steep IRS fines for ACA and COBRA violations, adding up to thousands—or even millions—of dollars.
- Operational Disruptions – HR, payroll, and benefits teams forced into emergency mode, working overtime to correct errors.
- Reputation Damage – Employees losing trust, bad press circulating, and long-term harm to employer branding.
And don’t make the mistake of thinking the penalties for non-compliance are hypothetical. They’re actively enforced, and they’re increasing year over year.
Examples of Non-Compliance in Healthcare & Real-World Penalties
Non-compliance isn’t always intentional, but that doesn’t mean the penalties are any less severe. And it only takes one misstep to trigger a financial and regulatory crisis. Here are some of the most common compliance failures, and what they can cost your organization.
Failure to Offer Affordable Coverage (ACA Violation – Employer Mandate)
A company with 50+ full-time equivalent employees assumes it’s meeting ACA standards—but a compliance audit finds that minimum essential coverage wasn’t provided to at least 95% of full-time employees, or coverage wasn’t affordable under IRS guidelines. At least one full time employee receives a premium tax credit. The penalty? A hefty Employer Shared Responsibility Payment.
Potential Costs: Up to $2,970 per employee per year (2024).
Misclassifying Employees to Avoid Benefits
An employer improperly categorizes full-time workers as part-time, hoping to avoid offering health insurance. But once employees file complaints, or an IRS audit reveals the mistake, the company is on the hook for penalties and retroactive benefits.
Potential Costs: IRS audits, ACA penalties, and expensive legal battles over backpay.
Failing to Send ACA & COBRA Notices
An HR team assumes COBRA notices were sent, but due to a system failure, former employees never receive them. The result? Fines that accrue daily, plus potential lawsuits from employees who were left without crucial benefits information.
Potential Costs: $110 per day, per affected participant, with possible class-action lawsuits.
Late or Inaccurate ACA Filings (IRS 1094-C & 1095-C Forms)
A company submits incomplete or incorrect ACA reports — or worse, misses the deadline entirely. The IRS doesn’t just send a warning; they impose automatic penalties.
Potential Cost: Up to $330 per incorrect form (2024) with a maximum penalty of $3,783,000 for large filers.
How to Avoid ACA Non-Compliance Penalties
TThe good news is that all these compliance mistakes are avoidable. With the right systems, processes and expert assistance, employers can stay ahead of regulatory requirements and steer clear of costly ACA non compliance penalties.
Keep Accurate Records from the Start
Tracking employee hours, benefits eligibility, and coverage status is critical. Manual errors lead to missed deadlines and incorrect filings — both of which trigger penalties. Use automated compliance software to reduce human error and ensure accurate reporting.
Properly Classify Employees Every Time
Misclassifying employees, whether deliberately or by accident, is also a costly mistake. The IRS defines full-time employees as those working 30+ hours per week, and failing to provide them with benefits leads to major fines. Be sure you conduct regular audits of worker classifications and follow IRS FTE rules
Provide ACA & COBRA Notices on Time
Many penalties arise simply because an employer failed to send required notices to employees. Missing deadlines for ACA or COBRA notifications puts companies at risk of steep daily fines. Ensure you automate benefits communications to ensure timely and accurate distribution and avoid ACA fines or COBRA noncompliance penalties.
Ensure Timely ACA Filings
ACA reporting deadlines aren’t suggestions—they’re hard cutoffs. Late or inaccurate IRS filings lead to fines per incorrect form, which can add up quickly. To avoid this, set your internal deadlines well ahead of the IRS due date (March 31 for e-filing) and double-check forms before submission.
Train HR & Benefits Teams Regularly
Compliance regulations change, and outdated processes can lead to non-compliance. HR and benefits teams need ongoing training to stay current with ACA, COBRA, and IRS reporting requirements. Hold annual compliance workshops and work with ACA compliance partners to stay informed.
ACA vs. COBRA Non-Compliance Penalties: What’s the Difference?
Employers must navigate multiple healthcare laws, and violations come with varying penalties. Here’s a quick comparison of risks, using penalty rates for the 2024 reporting year:
| Violation | Penalty | Who It Affects? |
| ACA Employer Mandate Violation | Up to $2,970 per employee/year[SB1] for an “A” penalty and $4,460[SB2] per employee/year for a “B” penalty. | Employers with 50+ FTEs |
| COBRA Notice Failure | $110 per day per participant | Employers with 20+ employees |
| ACA Reporting Failure (1095-C, 1094-C) | Up to $330 per incorrect form | Employers filing ACA reports |
| Incorrect Employee Classification | ACA fines | Companies misclassifying workers |
FAQs: ACA & COBRA Non-Compliance
What happens if my company doesn’t offer ACA-compliant insurance?
If your company has 50+ full-time employees and fails to provide affordable health insurance, you could face IRS ESRP penalties of up to $2,970 per employee per year.
How do I know if I need to send ACA notices to employees?
If you have 50+ full-time employees, you must provide ACA notices explaining coverage options under the employer mandate.
How long do employers have to send COBRA notices?
COBRA election notices should be sent within 14 days of an employee’s qualifying event, such as termination or reduced hours.
Final Thoughts: Stay Compliant, Avoid Costly Mistakes
ACA and COBRA non-compliance may seem like a minor paperwork issue until you get a notice and realize it’s a very serious financial and legal risk. Employers must stay proactive, track employee classifications, send required notices, and meet reporting deadlines to avoid penalties.
Selerix makes compliance easy. Whether you need automated benefits tracking, ACA reporting solutions, or expert guidance, we’re here to help.
Let Selerix help you manage healthcare compliance effortlessly. Talk to us today.
