As an insurance broker in the Virginia, Maryland, and Washington DC area, Jason Fitzgerald Korb has extensive experience with Affordable Care Act compliance requirements. If you are a small business owner struggling to understand your business insurance requirements, don't hesitate to contact Affordable Insurance Solutions to find the best insurance for both your business and your employees.
ACA compliance requirementsAccording to ADP observations, four of the most challenging ACA compliance requirements are determining employee eligibility, confirming affordability, reporting data and responding to penalty notices.
Determining employee eligibilityALEs are required to provide health insurance to at least 95% of their full-time employees, as well as the dependents of those employees, or they may be subject to penalties. For purposes of the ACA, a full-time employee is anyone who on average works 30 hours or more per week, or 130 or more hours per month.
Employers need to continually track which members of their workforce fulfill this criteria and whether they accept or decline the health coverage. Proper tracking means understanding not only hours worked as classified by the ACA, but also monitoring other actions, such as leaves of absence.
Gathering the required information regularly, accurately and in a timely manner can be the difference between potentially receiving an IRS penalty notice and being able to respond and have the penalty rescinded with no remaining liabilities.
Confirming affordabilityUnder the ACA, an employer-sponsored health plan cannot cost employees more than a certain percentage of their household income. It must also provide a certain level of benefits and value to employees and their covered individuals.
Since most employers won’t know their employees’ household incomes, safe harbor calculations may be used as alternative methods to determine affordability. Traditional safe harbors include W-2 wages, rate of pay and the federal poverty level. The use of other safe harbors depends upon the type of plans offered, i.e., traditional plans vs. individual coverage health reimbursement arrangement (ICHRA) plans.
Wellness programs and incentives that impact health care costs may also be considered when calculating affordability, as defined by ACA regulations.
Reporting data: IRS and applicable statesEach year, employers are required to file Form 1095-C with the IRS and provide a copy to all employees who were full-time or were enrolled in self-insured coverage for one or more months during the year. This document includes information about the type of health coverage offered, the lowest premium available to each employee, the months of the year when coverage was available, and the months the employee and dependents enrolled in that coverage.
Employers must also file Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, which goes to the IRS only. It’s essentially a cover sheet that asks for aggregate employer-level data, such as the number of full-time employees per month and the number of 1095-C forms that were issued.
What’s more, the IRS is not the only agency that requires ACA reporting. Some states have enacted laws that mimic the ACA and require annual reports. The method and format of reporting, as well as the deadlines, vary by state. All of them, however, take a similar approach to compliance.
Responding to IRS penalty noticesThe IRS generates penalty notices for each tax year based upon the Forms 1094-C/1095-C that were filed or required to be filed by employers, as well as data available from other sources (Form W-2, federal affordability measures, etc.). If any of the forms are late, incomplete or inaccurate, the “reasonable cause” standard applies.
To respond to penalty notices, employers must not only track current-day employee eligibility correctly and completely, but also maintain clear and accurate data from previous tax years. The response window is typically 30 to 45 days, during which time, employers have to provide the aforementioned data, describe potential corrections to the information on file with the IRS and pay any remaining penalties.
ACA compliance requirementsAccording to ADP observations, four of the most challenging ACA compliance requirements are determining employee eligibility, confirming affordability, reporting data and responding to penalty notices.
Determining employee eligibilityALEs are required to provide health insurance to at least 95% of their full-time employees, as well as the dependents of those employees, or they may be subject to penalties. For purposes of the ACA, a full-time employee is anyone who on average works 30 hours or more per week, or 130 or more hours per month.
Employers need to continually track which members of their workforce fulfill this criteria and whether they accept or decline the health coverage. Proper tracking means understanding not only hours worked as classified by the ACA, but also monitoring other actions, such as leaves of absence.
Gathering the required information regularly, accurately and in a timely manner can be the difference between potentially receiving an IRS penalty notice and being able to respond and have the penalty rescinded with no remaining liabilities.
Confirming affordabilityUnder the ACA, an employer-sponsored health plan cannot cost employees more than a certain percentage of their household income. It must also provide a certain level of benefits and value to employees and their covered individuals.
Since most employers won’t know their employees’ household incomes, safe harbor calculations may be used as alternative methods to determine affordability. Traditional safe harbors include W-2 wages, rate of pay and the federal poverty level. The use of other safe harbors depends upon the type of plans offered, i.e., traditional plans vs. individual coverage health reimbursement arrangement (ICHRA) plans.
Wellness programs and incentives that impact health care costs may also be considered when calculating affordability, as defined by ACA regulations.
Reporting data: IRS and applicable statesEach year, employers are required to file Form 1095-C with the IRS and provide a copy to all employees who were full-time or were enrolled in self-insured coverage for one or more months during the year. This document includes information about the type of health coverage offered, the lowest premium available to each employee, the months of the year when coverage was available, and the months the employee and dependents enrolled in that coverage.
Employers must also file Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, which goes to the IRS only. It’s essentially a cover sheet that asks for aggregate employer-level data, such as the number of full-time employees per month and the number of 1095-C forms that were issued.
What’s more, the IRS is not the only agency that requires ACA reporting. Some states have enacted laws that mimic the ACA and require annual reports. The method and format of reporting, as well as the deadlines, vary by state. All of them, however, take a similar approach to compliance.
Responding to IRS penalty noticesThe IRS generates penalty notices for each tax year based upon the Forms 1094-C/1095-C that were filed or required to be filed by employers, as well as data available from other sources (Form W-2, federal affordability measures, etc.). If any of the forms are late, incomplete or inaccurate, the “reasonable cause” standard applies.
To respond to penalty notices, employers must not only track current-day employee eligibility correctly and completely, but also maintain clear and accurate data from previous tax years. The response window is typically 30 to 45 days, during which time, employers have to provide the aforementioned data, describe potential corrections to the information on file with the IRS and pay any remaining penalties.