Failing to comply with ACA regulations, COBRA requirements, and other healthcare laws can lead to costly penalties, legal risks, and operational challenges.
What You’ll Learn:
✅ The most common examples of non-compliance in healthcare
✅ The real-world consequences of ACA violations
✅ How to stay compliant and avoid fines
Why It Matters:
The IRS actively enforces ACA penalties for non-compliance. Healthcare organizations, employers, and even small businesses need to stay informed about the regulations affecting them. Understanding how to navigate healthcare laws is critical not only to avoid hefty penalties but to ensure employees have access to the health benefits they rely on.
Consequences of Non-Compliance in Healthcare: Risks to Know
Non-compliance with healthcare regulations can lead to severe consequences for organizations. The risks associated with failing to meet legal standards are not only costly but can also disrupt day-to-day operations, harm employee morale, and tarnish your organization’s reputation. Non-compliance could leave your company vulnerable to legal actions, financial penalties, and other operational headaches. Let’s break down the primary risks:
- Legal Risks: Non-compliance can expose companies to investigations, lawsuits, and government scrutiny. The legal landscape surrounding healthcare laws is complex, and even minor errors can lead to significant legal battles. Government agencies such as the IRS, Department of Labor, and Department of Health and Human Services are responsible for monitoring and enforcing these laws, and they aren’t shy about holding businesses accountable for lapses.
- Financial Penalties: The IRS enforces significant financial penalties for non-compliance, particularly when it comes to the Affordable Care Act (ACA) and COBRA. These penalties can accumulate quickly, reaching tens of thousands of dollars in fines. What may seem like small mistakes, such as not filing certain forms or failing to notify employees about their benefits options, can result in hefty fines that could have been avoided with the right preparation.
- Operational Disruptions: When errors in benefits administration occur due to non-compliance, HR, payroll, and benefits teams are often left to scramble to correct them. These errors can create a bottleneck in day-to-day operations, wasting valuable time and resources. HR teams often find themselves overwhelmed by the volume of paperwork or the need to manage employee complaints, which can affect overall productivity and morale.
- Reputation Damage: In today’s connected world, the negative consequences of non-compliance can extend beyond just legal and financial penalties. Employers who fail to comply risk damaging their reputation among employees, potential recruits, and the broader public. The last thing an organization needs is to lose the trust of its workforce due to perceived negligence or lack of care in managing their benefits. A reputation for mishandling benefits could even discourage talent from joining your company, reducing your ability to attract top candidates.
Examples of Non-Compliance in Healthcare & Real-World Penalties
Let’s take a deeper dive into some of the most common violations that occur when employers fail to comply with ACA and COBRA regulations, and the substantial penalties that can follow these mistakes.
- Failure to Offer Affordable Coverage (ACA Violation – Employer Mandate)
Example: A company with 100+ full-time employees fails to offer ACA-compliant insurance, leaving workers without access to affordable healthcare.
Penalty: The Employer Shared Responsibility Payment (ESRP) can lead to fines up to $2,970 per employee in 2024. These fines can quickly add up, especially for larger organizations with a significant number of employees who are not receiving the required coverage.
- Incorrect Employee Classification
Example: A company misclassifies its full-time workers as part-time to avoid providing mandatory benefits like health insurance. This is a common mistake that some businesses make, but it can have serious consequences when caught by regulatory agencies.
Penalty: If the IRS discovers incorrect classifications, companies may face backpay, IRS audits, and additional fines for failing to provide health coverage as required by ACA guidelines.
- Failure to Distribute ACA & COBRA Notices
Example: A company does not provide the required COBRA election notices when an employee loses access to healthcare benefits due to termination or another qualifying event.
Penalty: Employers are subject to a fine of $110 per day per affected participant under ERISA. When you consider the number of employees in a company, these fines can add up quickly, leaving businesses with significant financial burdens.
- Late or Inaccurate ACA Filings (IRS 1094-C & 1095-C Forms)
Example: A company fails to submit accurate forms detailing the health coverage provided to employees or misses the ACA filing deadline altogether. Employers are required to report their employee health coverage through IRS Forms 1094-C and 1095-C.
Penalty: Employers who fail to submit accurate reports or who submit them late may face penalties of up to $310 per incorrect form in 2024. This penalty can snowball, especially when large companies submit multiple incorrect filings.
How to Avoid ACA Non-Compliance Penalties
The key to avoiding penalties related to non-compliance is being proactive. Preventing errors and understanding the regulations is crucial for keeping your organization on the right side of the law. Let’s look at some best practices for staying compliant with ACA and COBRA regulations:
Keep Accurate Records from the Start
Having a robust record-keeping system is essential. Tracking employee hours, classifications, and eligibility for benefits should be part of your organization’s regular workflow. In addition, keeping detailed records will help you avoid costly errors and provide the documentation needed if you’re ever audited. Utilizing automated compliance software can significantly reduce the risk of human error and streamline your processes.
Properly Classify Employees Every Time
Accurate employee classification is one of the most important aspects of ACA compliance. Be sure to follow the IRS’s definition of full-time employees (those working 30 or more hours per week). Misclassifying employees as part-time to avoid offering benefits is not only unethical but illegal. Regular audits of employee classifications should be conducted to ensure compliance and avoid IRS scrutiny.
Provide ACA & COBRA Notices on Time
Under the ACA and COBRA, employers are required to send specific notices to employees about their health benefits and rights. Whether it’s notifying employees about health insurance options, providing COBRA election notices, or informing them about changes to their coverage, timely distribution of these documents is essential. Automating this process can help ensure compliance and prevent delays that could lead to penalties.
Ensure Timely ACA Filings
The IRS requires employers to file their ACA reports on time. This includes submitting Forms 1094-C and 1095-C, detailing the health coverage provided to employees. Missing deadlines or submitting incorrect information can result in substantial penalties. Stay on top of filing deadlines and ensure your HR or payroll teams are well-trained to handle these responsibilities. Automation can also help reduce the risk of missing critical deadlines.
Train HR & Benefits Teams Regularly
Regular training for HR and benefits teams is essential to maintaining compliance. Provide annual workshops to ensure that staff is up to date on the latest regulations. Additionally, working with ACA compliance partners or consultants can help ensure your organization is following the latest guidelines, tracking employee benefits accurately, and submitting reports correctly.
ACA vs. COBRA Non-Compliance Penalties: What’s the Difference?
While ACA and COBRA regulations are both related to health benefits, the penalties for non-compliance differ significantly. Understanding these differences can help you prioritize compliance efforts:
| Violation | Penalty | Who It Affects? |
| ACA Employer Mandate Violation | $2,970 per employee/year | Large employers (50+ FTEs) |
| COBRA Notice Failure | $110 per day per participant | Employers with 20+ employees |
| ACA Reporting Failure (1095-C, 1094-C) | Up to $310 per incorrect form | Employers who file ACA reports |
| Incorrect Employee Classification | Backpay + ACA fines | Companies misclassifying workers |
FAQs: ACA & COBRA Non-Compliance
❓ What happens if my company doesn’t offer ACA-compliant insurance?
✅ Employers who fail to offer affordable health insurance to full-time employees may face penalties starting at $2,970 per employee in 2024. These fines can significantly increase depending on the number of employees affected.
❓ How do I know if I need to send ACA notices to employees?
✅ If your company has 50+ full-time employees, you must provide ACA notices to employees detailing their health benefits options, as per the employer mandate of the ACA.
❓ How long do employers have to send COBRA notices?
✅ Employers must send COBRA election notices to eligible employees within 14 days of a qualifying event, such as termination or a reduction in work hours.
Recap:
✅ ACA and COBRA non-compliance can lead to major fines and penalties.
✅ Employers must be diligent in tracking employee classifications, providing required notices, and filing reports accurately.
Find Healthcare Compliance Solutions
Avoid ACA penalties—let Selerix help you manage compliance effortlessly. Get started today.
By staying informed, utilizing the right tools, and implementing best practices, you can significantly reduce the risk of non-compliance and keep your organization on the right path. Let Selerix support you in navigating the complex landscape of healthcare compliance with confidence.
