ACA Compliance: Everything You Need to Know

The Affordable Care Act (ACA) requires employers with 50 or more full-time employees to offer affordable health care insurance to at least 95% of their employees. The ACA is also known as Obamacare, as it was signed into law by the Obama administration.

The ACA is a comprehensive healthcare reform law passed in the United States in 2010, with the primary goal of expanding access to affordable and quality healthcare for millions of Americans. ACA compliance entails both individuals and certain employers meeting their respective responsibilities as outlined in the law.

What is ACA compliance?

ACA compliance refers to the adherence and fulfillment of the requirements outlined in the ACA. Businesses that fail to comply with ACA regulations are subject to penalties. Here are the compliance requirements:

Full-time equivalent employees

Businesses that must meet the requirements of the Affordable Care Act (ACA) are known as Applicable Large Employers (ALEs). An organization with an average of 50 or more full-time equivalent employees is considered an ALE. To prevent organizations from getting around ACA requirements, full time equivalent employees are considered. Full-time equivalent employees is the number of full-time employees plus a fraction of the number of part-time employees, then divide that number by 30. An example of this is a company with 40 full-time and 20 part-time workers. Thus, by doing the math this company would be considered an ALE because it has the equivalent of 50 full-time employees.

ACA filing

Filing for the ACA is an annual requirement for employers. Reports include healthcare coverage information for the Internal Revenue Service (IRS). Failing to comply with ACA reporting requirements subject employers to ACA shared responsibility payments (ESRP).

Employers are required to file form 1095-C. The 1095-C form contains details regarding the kind of healthcare coverage that was provided, the least expensive premium that each worker could pay, the months in which coverage was offered, and the months that the worker and their dependents selected that insurance. A copy of this form must be provided to employees as well.

Also required for filing is Form 1094-C. Form 1094-C is a summary sheet that requests employer-level info. Included in the form is the amount of full-time employees each month and the amount of 1095-C forms that have been distributed. Form 1094-C documents are only sent to the IRS.

Key ACA-related forms at a glance:

  • Form 1095-C: Employer-Provided Health Insurance Offer and Coverage — large employers use this form to report health insurance coverage to full-time employees.
  • Form 1094-C: Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns — This form accompanies Form 1095-C and is used to transmit summary information to the IRS.

Starting in 2024, most employers must file their Forms 1094-C/1095-Cs electronically. If an employer needs to file 10 or more returns in total, they’re required to file electronically.

Responding to penalty notices from the IRS

The IRS will send a business penality notices if 1094-C/1095-C forms were filled out, incorrectly, incomplete, and submitted late. The IRS generates penalty notices each tax year, and employers must respond if they recieve a notice. Upon receiving a penalty notice, employers have to provide current-day employee eligibility and ensure accuracy. On top of that, employers need to keep precise and reliable records from prior tax years. Employers typically have 30 to 45 days to respond to penalty notices. Employers must provide the requested data, in addition to detailing any discrepancies with the IRS records and settling any outstanding penalties.

ACA compliance checklist

Penalties for non-compliance can cost employers thousands. So, employers must be proactive in making sure that their business is adhering to regulations. Here’s some steps employers should follow:

Ensure health coverage meets the affordability threshold

Under the ACA, employers (specifically ALEs) are subject to ESRP payments if their lowest tier self-only coverage option includes employee costs that are considered unaffordable. The ACA considers an employee’s household income and inflation when assessing if coverage is reasonably priced. As the threshold for affordable health coverage continues to lower, it’s crucial for employers to adapt to them.

ESRP payments are only getting higher as the IRS annually adjusts ESRP payment amounts based on inflation. Looking ahead to 2024, penalties could be as high as $4,460. The high cost of penalties should incentivize employers to offer at least one, affordable self-only option.

Use household safe harbors to determine affordability

ALEs can use household safe harbors to prove ACA affordability when submitting their annual IRS return. ALEs don’t know their employees household incomes, so safe harbors help employers determine affordability. There are three safe harbors, which are:

  1. Employee Form W-2s: This is a practical choice for companies that have staff that regularly clock the same amount of hours weekly, or those that are paid a fixed annual salary.
  2. Pay rate: an employee’s pay at the beginning of the coverage period determines this safe harbor. Adjustments are granted if an hourly employee’s pay decreases during the coverage period.
  3. The federal poverty line: This safe harbor simplifies the process of determining affordability, since employers won’t need to make calculations for each employee.

Know when Form 1094-C/1095-C deadlines are

One of the easiest ways to avoid penalties from the IRS is to just make sure forms are submitted on time. Even if all forms are filed correctly, late submissions penalties are costly.

Incorporate benefits technology

Benefits technology is great for helping employers stay compliant. The system stores the details of your employees’ eligibility, the various plan choices and prices, and the data about the benefit coverage. Having all the required data in one location streamlines the process of generating your 1095/1094 forms.

By using a benefits administration platform for ACA reporting, an organization can minimize the potential for mistakes and help prevent costly fines and penalties. Technology can track measurements and stability periods, monitor employees who are gaining or losing eligibility, and alert when potential employees require coverage.

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