The Affordable Care Act is potentially being repealed, but it is important for employers to take certain actions to mitigate their current compliance risks.
Since the passage of the Affordable Care Act (ACA) in 2010, employers of all sizes have struggled to comply with the ACA’s regulations and changes. The original law established a broad framework, but many of the details came after the law was signed and were frequently delayed at the last minute or different from the original plan.
The election in 2016 left even more uncertainty about the future of the ACA. But until a final verdict is reached, employers must continue to stay on top of current changes in regulations to maintain compliance. To help employers understand recent updates, we summarized the short-term and long-term ACA outlook and provided some action steps for employers to navigate the law.
Short-term outlook: keep up with current processes
Over the short-term, it appears that much of the ACA will continue to stay in place. For employers, this means they need to continue:
- Reporting on Forms 1094 and 1095
- Avoiding employer mandate penalties under Section 4980H
- Avoiding market reform penalties under Section 4980D
Fine-tune reporting
Employers need to continue improving their processes for 2017 and track data for annual ACA reporting. The IRS is working on improvements to its systems; focus areas were recently highlighted in an April 7, 2017, report from the Treasury Inspector General for Tax Administration following its audit of the IRS. As the IRS improves its systems based on the report, they are expected to more accurately identify errors and incorrect data. The report highlighted the large number of incorrect filings that, to date, have not been pursued by the IRS. These issues include taxpayer identification number (TIN) matching errors and forms missing a portion of Line 14 data. These changes will raise the bar on employers to provide accurate forms by their deadlines in order to avoid penalties.
IRS notices for 2015
Some may call it karma for creating unnecessarily complex tax forms, but the IRS is struggling to process Forms 1094 and 1095 going back to the original 2015 filings. As a result, the IRS continues to push back its timeline for issuing penalty notices. We expect the notices to arrive in mid-2017, and when employers receive them, they should be ready to respond.
Unlike the optional response to Section 1411 notices, which employers may have received from the Department of Health and Human Services (HHS) when an employee received a government subsidy through the ACA Exchanges, the IRS notices give an employer two options:
- Provide evidence to dispute a penalty within a short timeframe
- Accept the penalty and receive a demand for payment
As we learned from the HHS letters, there were a number of individuals who received ACA subsidies by incorrectly certifying they were not offered affordable employer coverage. This conflicted with the Form 1095-C filed by the individuals’ employers. Unfortunately, we do not know if the IRS will issue a penalty notice in these situations. Assuming they do, it would place the burden of proof on employers to demonstrate the employee was offered affordable coverage.
Don’t lose sight of compliance rules
ACA regulations can be difficult to follow, and we continue to see employers inadvertently triggering penalties. Most commonly, we see employers providing reimbursement of health insurance premiums for plans that have not been appropriately integrated. While this was once a nice benefit to offer employees, the ACA strongly discourages such arrangements with a $36,500 self-reported, annual penalty.
Long-term outlook
According to many surveys, the ACA is generally supported. A Kaiser Family Foundation survey published on April 4, 2017, found that 75 percent of Americans believe the current administration should try to make the ACA work rather than replacing it. Certain provisions such as the ACA’s pre-existing condition rules enjoy broad support and would be politically difficult to remove. However, those same provisions are so integrated with other parts of the ACA that it will be difficult for Congress to find a path forward that pleases everyone. Even with the current bill pending in the Senate, Mitch McConnell stated on May 24, 2017, that “I don’t know how we get to 50 [votes] at the moment.” Because of these challenges and the current political environment, it seems unlikely to see a bill pass quickly, and even the long-term outlook may share more features with the original ACA than was anticipated during the election process.
Be flexible and prepare for changes in health care
Employers should build flexibility into their long-term plans. There are provisions in the ACA that are broadly unpopular, such as the Cadillac Tax. While employers do need to work with their service providers to understand the risks of triggering the Cadillac Tax, it would not be surprising to see the rule delayed (again) or repealed. Additionally, we will continue advocating for improvement related to the following, which are universally challenging to employers:
- Complex ACA reporting: Between Lines 14 and 16, there are 18 different codes to explain various employee situations, and steep penalties for using the wrong ones.
- Complicated rules for determining full-time status: The regulations for determining who is a full-time employee under the ACA are incredibly long. There are multiple methods, which require substantial analysis, and the results of this directly impact penalties under the employer mandate.
- Reimbursing health plan premiums: The penalty associated with reimbursing individual health plan premiums is large and seems against the spirit of the law, since it helps increase the number of covered individuals. Additionally, the rules to ensure a reimbursement program is properly integrated can be difficult for employers to follow.
How we can help
CliftonLarsonAllen will be monitoring developments as the recent health care bill is negotiated in the Senate. In the meantime, it is important to stay on top of current requirements and regulations. We can help with a range of ACA compliance services, including navigating a specific ACA filing, regulations, and provide details regarding offerings for health care benefits or specific ACA rules so that you can better understand your organization’s compliance risk.
Learn how the ACA impacts the health care industry at our June 8 webinar on ACA Repeal and Replace: No Spin, Just the Facts.