Employer Alert: Common Health Plan Mistakes That Could Cost You

18 August 2025

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Navigating the complexities of employer-sponsored health plans is a critical responsibility for any business owner. However, even well-intentioned employers can inadvertently make compliance errors, leading to significant financial penalties and legal challenges. From neglecting to provide essential documentation to overlooking mandatory testing and filings, these common mistakes can jeopardize your company’s finances and reputation. In this article, we’ll explore some of the most frequent health plan compliance pitfalls and offer guidance on avoiding them, ensuring your business remains compliant, and your employees are well informed.

Compliance Mistake	Description	Potential Issues
Lack of an official plan document or SPD	Employers must have a formal plan document and provide a Summary Plan Description (SPD) to employees.	Fines up to $110/day for non-compliance, legal disadvantages, and potential DOL enforcement.
No Section 125 Plan Document for Pre-tax Contributions	Pre-tax health contributions require a Section 125 (Cafeteria Plan) document.	Employee contributions may become taxable.
Overlooking Non-discrimination Testing	Employers must ensure benefits do not favor highly compensated employees.	Highly compensated employees could lose tax benefits.
Failing to File Form 5500	ERISA-covered plans must file this annual report unless exempt.	Fines up to $2,739/day; voluntary correction programs available.
Not Offering Affordable Health Coverage	Applicable large employers (ALEs) must provide affordable health insurance to full-time employees.	Penalties under ACA’s “pay-or-play” rules (up to $4,350 per affected employee in 2025).
Failure to Send COBRA Election Notices	Separate COBRA notices must be sent to spouses living at different addresses.	Fines up to $110/day and possible excise taxes of $100/day per affected individual.
Lack of Alternative Standards in Wellness Programs	Health-contingent wellness programs must disclose alternative ways to qualify.	Excise taxes of $100/day per impacted individual, potential lawsuits.
Medicare Secondary Payer Violations	Employers cannot incentivize Medicare-eligible employees to drop employer coverage.	Fines up to $11,524 for non-compliance.
Failure to Provide Medicare Part D Disclosures	Employers must notify Medicare-eligible employees about prescription drug coverage.	No direct fines, but late enrollment in Medicare Part D could result in higher employee premiums.
Not Providing CHIP Notice	Employers must inform employees about state premium assistance programs.	Fines up to $145/day for failure to comply.