--- title: Avoid Common Health Plan Compliance Mistakes description: Managing federal compliance for group health plans can be challenging. Regular reviews and addressing gaps are crucial to mitigate risks. image: https://blog.nisbenefits.com/hubfs/blog-headers/health-compliance-b.jpg --- ![Avoid Common Health Plan Compliance Mistakes](https://blog.nisbenefits.com/hubfs/blog-headers/health-compliance-b.jpg) # Avoid Common Health Plan Compliance Mistakes - Home - [Employee Benefit News for School, City and County Employers](https://blog.nisbenefits.com) - Avoid Common Health Plan Compliance Mistakes [ Steve Smith ](https://blog.nisbenefits.com/author/steve-smith) 02/25/2025 [ Health Insurance Solutions](https://blog.nisbenefits.com/topic/health-insurance-solutions), [ Legislative News](https://blog.nisbenefits.com/topic/aca-other-legislative-news) [0 Comments ](https://blog.nisbenefits.com/avoid-common-health-plan-compliance-mistakes#postComment) 3 Minutes *5 minute read* Employers with group health plans face numerous federal compliance requirements, which can be difficult to manage. Mistakes may lead to penalties or legal issues. Regularly reviewing compliance and addressing gaps is essential to avoid these risks. Here are some mistakes that employers commonly make when it comes to health plan compliance. 1. ** ****Not having an official plan document or providing plan participants with an SPD** ERISA mandates that private-sector employers maintain official plan documents and provide a Summary Plan Description (SPD) for employee benefit plans. Overlooking these requirements can lead to significant issues, such as daily fines for not providing documents upon request, legal disadvantages in benefit disputes, and potential audits by the Department of Labor (DOL). Employers should ensure compliance to avoid penalties and complications.   1. ** ****Allowing pre-tax contributions without a Section 125 plan document**  Section 125 of the Internal Revenue Code allows employers to create tax-saving cafeteria plans for employees, enabling pre-tax benefit payments and boosting take-home pay. To remain tax-free, these plans must comply with IRS regulations and have a written plan document adopted by the employer before the plan year starts. Without this, employees' benefit choices may become taxable.   1. ** ****Overlooking nondiscrimination testing** The Code requires nondiscrimination in employee benefits to prevent favoritism towards highly compensated employees. These rules apply to self-insured health and Section 125 plans, while fully insured plans are currently exempt. Plans that treat all employees equally generally pass nondiscrimination tests, but differing treatment can cause issues. Problematic designs include eligibility limited to certain groups, varying employment requirements, differing employer contributions, and separate health plans for different groups. Ignoring these tests can lead to tax benefit losses for highly compensated employees.   1. ** ****Failing to File a Form 550** ERISA-subject employers must file Form 5500 with the DOL annually for their benefit plans by the seventh month after the plan year ends, or by July 31 for calendar-year health plans. Small welfare plans with fewer than 100 participants that are unfunded or fully insured are exempt. Noncompliance can incur penalties up to $2,739 per day, but these may be waived for reasonable cause. The DOL offers a voluntary correction program for late or missing forms, allowing employers to rectify issues and pay reduced penalties if they have not been notified of a filing failure.   1. ** ****Not offering affordable health insurance coverage to full-time employees** The Affordable Care Act mandates that large employers (ALEs) provide affordable, minimum-value health coverage to full-time employees and their dependents or face IRS penalties. Known as the "pay-or-play" rules, these do not apply to small employers with fewer than 50 full-time employees. ALEs risk penalties if they fail to cover at least 95% of full-time employees, offer unaffordable plans, or do not meet minimum value standards. Penalties include the 4980H(a) penalty for not covering most full-time employees and the 4980H(b) penalty for unaffordable or insufficient coverage. For 2025, penalties are $2,900 and $4,350 per employee, respectively.   1. ** ****Failing to send a separate COBRA election notice to a spouse living at a different address** COBRA mandates that employers with 20 or more employees offer continuation coverage to employees, spouses, and dependents when their health coverage ends due to qualifying events. Employers must provide a COBRA election notice to inform beneficiaries of their rights, coverage options, and payment details. If beneficiaries live at different addresses, separate notices are required. Failing to provide these notices can result in penalties of $110 per day under ERISA and a $100 excise tax per day. Courts may extend the election period and impose additional liabilities if notices are not properly issued.   1. ** ****Offering a health-contingent wellness program but not disclosing the availability of an alternative standard for qualifying for the program’s reward** Workplace wellness programs within group health plans must adhere to HIPAA's nondiscrimination rules, especially for health-contingent programs. These programs must offer rewards to all eligible individuals and provide reasonable alternatives if needed. Employers must disclose these alternatives and accommodate personal physician recommendations in all relevant plan materials. Non-compliance can lead to excise taxes of $100 per day for everyone impacted by the failure, as well as possible Department of Labor enforcement action and civil penalties.   1. ** ****Taking into account employees’ (spouses’) Medicare coverage** When individuals have both Medicare and employer-sponsored health coverage, each is termed a "payer." Medicare's rules determine which payer covers claims first. Typically, employer health plans for companies with 20+ employees are primary for those eligible for Medicare due to age. Employers must adhere to rules ensuring Medicare remains secondary, such as not excluding Medicare-eligible employees from coverage or offering incentives to opt out. Violations can result in penalties up to $11,524.   1. ** ****Forgetting the Medicare Part D disclosures** Employers with group health plans offering prescription drug coverage to Medicare Part D eligible individuals must annually disclose whether their coverage is "creditable" to both eligible individuals and the Centers for Medicare and Medicaid Services (CMS). This disclosure to individuals is due by October 15, and to CMS within 60 days of the plan year start. While there are no specific penalties for non-compliance, failing to inform employees can lead to higher premiums if they delay Medicare Part D enrollment.   1. ** ****Not providing the annual Children’s Health Insurance Program (CHIP) notice** The Children’s Health Insurance Program Reauthorization Act of 2009 allows states to offer premium assistance to eligible low-income families for employer-sponsored health coverage. Employers with group health plans in states providing these subsidies must send an annual notice or face penalties of $145 per day. Download the [bulletin](https://blog.nisbenefits.com/hubfs/blog-supporting-docs/bulletin-common-health-plan-compliance-mistakes-avoid.pdf) for more details.   ### **Additional Resources** U.S. Department of Labor (DOL) [self-compliance tool](https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/health-plans/hbec/checksheets) IRS [questions and answers](https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act) on ACA’s pay-or-play rules DOL’s [Reporting and Disclosure Guide for Employee Benefit Plans](https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/reporting-annual-disclosure.pdf) [![Anoka-Hennepin School District Case Study](https://no-cache.hubspot.com/cta/default/3325505/8b976330-049c-4968-b0d0-27c99793732b.png)](https://cta-redirect.hubspot.com/cta/redirect/3325505/8b976330-049c-4968-b0d0-27c99793732b) --- #### Tag: [ Health Insurance Solutions](https://blog.nisbenefits.com/topic/health-insurance-solutions) [ Legislative News](https://blog.nisbenefits.com/topic/aca-other-legislative-news) #### Share: - 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