Ever since its inception over a decade ago, the Affordable Care Act (ACA) – often referred to as “Obamacare” - has been heavily debated on its relevance. Many employers recognize the requirement and take the necessary steps to meet the compliance requirements of the law.
Unfortunately, there are also many employers that fail to comply or create errors in their reporting, leading to fines and penalties from the IRS. This article will look tell you the basics of what you need to know about ACA compliance, including:
- Who Needs to Report on ACA Compliance
- The Consequences of ACA Compliance Penalties
- Expert Tips on How to Avoid ACA Penalties
Who Needs to Report on ACA (Based on Employee Types)
First, it’s important to note that not all employers are required to comply with the ACA. The IRS states that any employer with over 50 full-time employees (FTE) must comply with the ACA.
It gets a little more complicated, however when you factor in the difference between a “designated” versus “calculated” FTE. For example, you may only have 30 designated full-time employees, but there may be another 30 in your business that are not full-time, but because of their total calculated hours worked, they actually factor into the FTE category.
Additionally, the ACA rule only applies to an FTE on their 91st day of employment, so tracking those days till eligibility can be a challenge without a proper ACA compliance solution in place. You can also determine your eligibility on the ACA website.
The Consequences of ACA Compliance Penalties
The ACA is one of those laws that keep popping up in the political discussion. Regardless of what may be debated by lawmakers, the ACA is still the law of the land and failure to comply can result in some serious penalties. Below are just some of the penalties of which you should be aware:
1. Failure to Provide Insurance = $2700 per FTE
An employer who does not offer “minimum essential coverage” (MEC) to at least 95% of its full-time employees and their dependents may be subject to a penalty equal to $2,700 per FTE (the IRS waives the penalty for the first 30 employees).
Example: If you have 150 employees and you fail to provide some minimum essential coverage, the IRS will fine you $324,000 (150 total employees - 30 waived employees * $2,700).
2. Failure to Provide “Affordable” Insurance = $4060 per FTE
If an employer does offer MEC to at least 95% of its full-time employees and their dependents, but the coverage is not “affordable” or does not provide “minimum value,” the employer will be subject to a monthly penalty equal to $4,060 per FTE. This penalty is assessed if there isn’t an affordable alternative for your employees when providing a plan.
Example: If you have 150 employees and you provide insurance, but 20 of them cannot afford it and instead purchase healthcare in the marketplace, you will be fined $81,200 (20 employees who buy in market * $4,060).
3. Failure to Report to the IRS = $560 per FTE
If an employer is offering insurance to its employees and has complied with what the ACA asks but, for one reason or another, fails to report the proper forms and/or makes errors on the form, the IRS will send the employer a letter with a potential fine for $280 if the employer failed to provide the form to an employee and another $280 if they fail to provide it to the IRS. In the 150-employee example, that could mean a total of $84,000 in penalties.
Expert Tips on How to Avoid ACA Penalties
The numbers above can be very daunting, and a lot of businesses that fall just within that 50 FTE threshold may feel like they are operating “under the radar” and won’t get a fine. Todd Bellistri, CEO of August Benefits, is a seasoned expert helping businesses navigate ACA compliance for years and says, “The IRS has not backed down on issuing ACA violations, and both large and small companies are being given these violation letters.”
Todd recommends a few tips for anyone having to report on ACA:
1. Know the rules and seek expert help
While some of the basics were outlined above, there are a host of other caveats and additional requirements for various ACA regulations. When in doubt, look to working with consultants or experts that deal with ACA reporting – it could end up saving you money in the long-term
2. Document EVERYTHING
Whether you have a manual paper-based system or workforce management technology, make sure you have clear records of who in your business is eligible, whom you offered insurance to, and who waived or enrolled. This way, you won’t be left without evidence of your effort to meet the compliance requirements.
3. If you get a letter, don't panic
The IRS sends out thousands of letters, and many are the result of minor errors or inaccuracies. You have the right to respond, and you can also request an additional 30-day extension to respond, which gives you more time to work through your reporting.
4. (Almost) everything is negotiable
Many times, the IRS recognizes that many ACA violations are a result of errors or miscalculations by the employer. As long as you have a clear record of what you offered your employees and when, you can work with the IRS to reduce or even eliminate fines.
The ACA and Healthcare is More Important Than Ever
When you think about the role of the ACA, especially with the lens of the events of 2020, it stands to reason that creating affordable healthcare is more important than ever. With millions impacted in their own health and wellness, having ready access to proper health insurance can literally mean the difference between life and death.
While the ACA carries a weight of potential penalties and fines for non-compliance, the challenges can be overcome with a little visibility and control. Whether you choose to work with 3rd parties, implement workforce management technology to help automate the process, or a combination of both – having the right tools for ACA compliance can save you in the long term.