Navigating health reform
Make Your ACA Reporting More Efficient
Since the passage of the Affordable Care Act (ACA) in 2010, employers have spent a lot of time analyzing the potential impact on their business. However, many of the changes were not in full swing until 2015, when the ACA’s reporting requirements, employer mandates, and restrictions on benefit arrangements were actively implemented.
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We’ve learned some lessons, and as a result we have identified three areas to focus on to help next make next year’s efforts more efficient.
Lesson #1: Navigate the complexity of ACA reporting
On March 31, 2016, large employers (more than 50 employees) were required to provide employees Form 1095-C. The concept behind reporting seems easy enough: report who is full-time, report who was offered insurance, and report the cost of insurance.
However, Form 1095-C has 18 different codes to apply in various combinations for different employee situations, in addition to a long list of transition relief and safe harbor options to review. Plus, the instructions have numerous unanswered questions and apparent contradictions. For example, an offer of COBRA to an active employee is an offer (1E), but an offer of COBRA to a recently terminated employee is not an offer (1H), but then an offer of COBRA to an employee who terminated in a previous year is once again called an offer (1G).
As we continue to navigate these complex rules, here’s what to keep in mind for reporting in 2016:
- Start early: The 1095-C is complicated and requires more than copying data onto a form and dropping it in the mail. The form requires measurements and combines a number of data sources into a complex coding system. Unlike this year’s March 2016 deadline, the deadline has moved up for next year to January 31, 2017. Your preparation timeline will need to begin earlier, too.
- Review carefully: For the 2015 forms, we suspect the IRS will have their hands full with inaccurate 1095-C forms. The potential penalties for inaccurate forms are large (i.e., $500 per form), but for 2015 there is a good faith clause that allows employers to dispute a penalty assessment. However, the bar will be higher for forms submitted in 2016, and the good faith clause disappears. Employers need a careful review process to avoid submitting inaccurate forms.
- Consider your software or service provider: As we reviewed this year’s forms, we quickly found that many programs have minimal or no error checking features. As a result, many of the forms dispersed to employees contain large errors that will be obvious to the IRS. The employer is ultimately responsible for 1095-C forms, so software is not a substitute for review.
Lesson #2: Determine full-time employee status
Employers must use one of two methods to determine full-time status. For most employers, the rules are different than the methods they previously used to determine eligibility for health coverage. And for 2016, large employers need to offer coverage to at least 95 percent of full-time employees to avoid potential penalties. Each method has advantages and disadvantages. Here are summaries of both approaches:
- Any employee with at least 130 hours of service in a calendar month is classified as a full-time employee for that month.
- Pros: Calculating full-time employees each month is significantly easier using this method when compared to the look-back method.
- Cons: Employees whose hours fluctuate each month and seasonal employees might flip-flop between full-time and part-time status each month, making it administratively difficult for employees to add and drop health coverage throughout the year.
- This method requires a more involved implementation process. Hours of service are tracked for an employee during a specified “measurement period.” At the end of the measurement period, hours are averaged to determine full-time status. If an employee is considered full-time status, then the employer is locked into offering coverage over a “stability period.”
- Pros: This method averages hours over a longer time period to avoid monthly status changes. For ongoing employees, this method aligns with an annual open enrollment process. This method also delays enrollment of variable-hour and seasonal employees.
- Cons: The method can be administratively burdensome, and most employers will need a software program to effectively monitor each employee’s measurement period, as there are many overlapping measurement and stability periods occurring at once. This method also requires more thorough classification of status upon hire to determine how soon an employee needs to be offered coverage.
Choosing the best method for your organization
We can help you to determine the best method of organizing your full-time employees by:
- Considering your organization’s size and penalty exposure under ACA. If you have more than 50 employees and the number of full-time employees exceeds 30, it is important to get this right.
- Considering the types of employees working for your organization. We often find penalty exposure in organizations that have employees whose hours fluctuate month to month, have seasonal employees, or have short-term employees.
- Considering who is currently being offered health coverage and what gaps potentially exist.
- Analyzing the costs and benefits of both methods.
Lesson #3: Know the health care benefit restrictions and penalties
The ACA restricts what types of health care can and cannot be offered to employees. These restrictions are monitored through additional reporting and enforced by assessment of penalties. The following penalties are associated with each type of elected health care benefits.
|Benefit Plan||Description||Associated Penalty|
|No or limited insurance||Employers choose not to insure employees for varying reasons, including providing cash compensation instead.||For large employers, $2,000 per full-time employee after the first 30.|
|Provide assistance, but not insurance||It has historically been difficult to establish a group health plan without a certain participation level, especially among small employers. It was a common practice to have employees buy their own insurance and then get reimbursed for a portion of it.||For any size employer, $36,500 per employee per year.|
|Provide insurance to employees at a high cost||The vast majority of large employers (more than 50 employees) offer a group health plan, but it is not always “affordable” depending on the premium and income of employees.||For large employers, $3,000 per full-time employee without access to “affordable” insurance who takes a government subsidy on the ACA Exchange.|
|Provide insurance to employees at an “affordable” cost||In accordance with the ACA, a premium is to be less than 9.5 percent of an employee’s household income to pass the IRS’s affordability test.||None.|
|Provide insurance to employees at a very low cost, but offer cash for opting out||Among plans with very low employee premium rates, it is somewhat common to offer cash to employees who waive coverage. This keeps premiums low or free for those insured.||Pending future guidance, this may trigger a $3,000 penalty. The government anticipates releasing future guidance that would add the cash opt-out payment to the premium cost when determining affordability.|
|Provide very generous insurance to employees||Around one-quarter to one-half of group health plans are expected to be considered high-cost plans.||Starting in 2020, health plans offering too much in benefits will be subject to a 40 percent excise tax. The tax applies to the cost (both employer and employee portion of the premium, plus a number of other benefits) in excess of certain thresholds.|
How we can help
Whether you need help navigating a specific mandate or are unsure about details regarding offerings for health care benefits, our professionals are prepared to walk you through ACA mandates. It will take time to become accustomed to these new rules, and staying on top of these changes in protocol can help make your efforts more efficient. We can help you to implement these new standards by:
- Suggesting software to track information and monitor employee status.
- Preparing Forms 1095-C and 1094-C or 1095-B and 1094-B.
- Tracking and documenting hours to avoid penalties.
- Managing IRS penalty notices and information requests.