Compliance is likely one of the biggest HR-related challenges facing your business. Staying compliant with the Affordable Care Act doesn’t have to be a headache.

The ACA is complicated, and while we can’t cover every detail in one blog post, we’re going to outline important information that you can continually refer to as you navigate the upcoming ACA reporting season. For expert advice, we consulted Regan Debban, J.D., MBA, Principal, of leading compliance consulting firm Benefit Comply.

Background: ACA Reporting

If you are an Applicable Large Employer (ALE), defined as a company with an average of at least 50 full-time equivalents, you are required to offer affordable health insurance to your full-time employees as a part of the ACA’s Employer Mandate or Employer Shared Responsibility Payments. Minimum essential coverage (MEC) must also be offered to 95% or all but 5 employees (if greater), of full-time employees and their dependents. In addition, the coverage must provide minimum value and must be affordable.

Since the IRS can’t just trust that your business is offering affordable health coverage that meets minimum value, you must prove your compliance to the IRS each year via ACA reporting. If you fail to complete ACA reporting, you may receive a Letter 5699, and if you report but do not appear to be compliant, you will receive a proposed assessment via Letter 226J. After you receive a letter, you will pay your penalty or put forth evidence that you are not in violation and there was a mistake made in the reporting process. Both of these processes can be time consuming and expensive.

Why Businesses Fail To Comply With The ACA

Proving that your business is ACA compliant is a complex, lengthy process. It involves collecting different datasets from several sources, running calculations based on employee demographics, and completing extensive forms. Unfortunately, this opens the door to easy mistakes that could yield penalties and legal complications.

We asked Regan from Benefit Comply to present the ACA violations and the corresponding penalties businesses most often fall victim to:

  • §4980H(a): An employer fails to offer minimum value, affordable health insurance, to at least 95% of (or all but 5, if greater) full-time employees and their dependent children in any given month.
    Penalty calculation = (full-time employee count – 30) X §4980H(a) penalty.
  • §4980H(b)An employer fails to offer minimum value, affordable coverage to any of its full-time employees.
    Penalty calculation = §4980H(b) for each full-time employee who is not offered minimum-value, affordable coverage who enrolls through a public Exchange and qualifies for a tax subsidy.
  • Forms 1094-C and 1095-C: An employer fails to report on offers of coverage to full-time employees via Form 1094-C and 1095-C.
    Penalty Calculation: $250-270 per form depending upon which year the error occurs.

For each of the violations listed above, the fine per employee and total penalty cost has increased every year. In 2015, the fine for §4980H(a) was $2,080 and by 2018, the penalty grew to $2,320. For example, if a company with a total full-time employee count of 100 did not offer minimum essential coverage to at least 95% of its employees in 2018, the penalty calculation would be: (100-30) X 2,320 = $162,400.

Mistakes To Watch For

In the past, the IRS did not penalize employers they believed put forth a “good faith” effort to comply with ACA requirements, but it is unclear whether this will be true for the upcoming reporting year. This makes it more important than ever for employers to accurately complete ACA reporting in order to avoid a large penalty like the example listed above.

Regan often warns employers of two avoidable mistakes that have unnecessarily caused headaches in the past. They include:

  • Employers marking the “No” box in in Part III, Column (a) of the Form 1094-C, indicating to the IRS that coverage was NOT offered to 95% of full-time employees and their children when it actually was.
    If the “No” box is checked and at least one full-time employee enrolled in subsidized coverage through a public Exchange, the employer will receive a Letter 226J proposing an assessment under §4980H(a),” said Regan.
  • Failure to accurately code whether coverage was offered or not on Lines 14-16 of Form 1095-Cs, especially on Line 16 (Codes 2A – 2H).
    If the employer offered minimum value, affordable coverage to employees during months of full-time employment, but the coding doesn’t reflect the coverage offered, the employer may have to go through the appeal process and provide the IRS with accurate coding for any full-time employees who enrolled in subsidized coverage through a public exchange to avoid penalties under §4980H(b),” said Regan.

Avoiding Costly Penalties

The good news is that there are several steps you can take to ensure that your business is ACA compliant. Regan suggests starting by examining your medical plan offerings.

“Employers should ensure that their medical plan offerings are set up to comply with §4980H requirements and that the employer has a method of reporting such offers of coverage on a timely basis to the IRS.”

When it comes to ACA reporting, Regan named the following three actions as a must for HR administrators and/or business-owners managing ACA reporting:

  1. Structure medical plan eligibility to ensure that most full-time employees receive an offer of minimum value, affordable coverage, and have documentation to back up such offers of coverage.
  2. Remember that full-time is defined as an employee who works 30 or more hours per week. Full-time status can be tracked using the monthly measurement method or the look-back measurement method.
  3. Track full-time status and offer of coverage information throughout the year, and use a vendor or system that can accurately report such information to the IRS.

Regan explained the benefits of keeping up with ACA reporting throughout the year.

“To accurately report, the employer must track full-time status and offers of coverage on a monthly basis for an entire calendar year. The whole process is typically easier if the tracking is done throughout the year.”

Resources & Tools To Help

ACA reporting carries a lot of responsibility and risk. The good news is that you do not have to manage ACA reporting on your own. In fact, Regan encourages employers to work with a service or vendor to ensure ACA compliance.

“Make sure you have a vendor or system in place that can accurately report the required information to the IRS in a timely fashion.”

If you’re new to ACA reporting and/or are looking for a new service or vendor to help, we recommend reaching out to your health insurance broker. Because a lot of the data required to prove your ACA compliance is the same data required for benefits enrollment, your broker will likely be able to help you compile the necessary data. They also may have a software solution or service that you can use to ensure ACA compliance.

No matter the vendor or software solution you use, it’s important that you’re able to perform the actions necessary to prove ACA compliance. This includes:

    1. Calculate your ALE status: Determine if you’re even required to prove your ACA compliance to the IRS
    2. Track variable hour employees: Identify how many of your employees were required to receive affordable, minimum value coverage (i.e. how many employees are considered full-time)  
    3. Measure affordability: Prove that your coverage met minimum value and was affordable
    4. Generate the necessary forms: Generate the appropriate forms the IRS requires for both you and your employees
    5. Deliver or E-file the required forms: Submit and deliver the required forms to your employees and the IRS

ACA Reporting Season Is Coming

The first ACA reporting deadline is in less than two months. Proving that your business is ACA compliant isn’t something that can be completed in a few hours. Remember to start early, avoid common mistakes, and take advantage of services and resources that can help. We think it’s the best way to avoid thousands of dollars in fines.