A new study has found that more than half of large employers are not prepared to properly comply with all of the requirements of the Affordable Care Act.
The study by ADP, a payroll vendor, looked at how companies are gearing up to comply with the ACA’s regulatory requirements.
Because the research looked at the preparedness of large employers, which have sophisticated human resources departments, it is likely that small and mid-sized employers are even less prepared.
The study, “Affordable Care Act and Employer Confidence: Navigating a Complex Compliance Challenge,” found that while 70% of large employers are handling ACA compliance internally, these employers do not feel fully prepared to manage several critical compliance requirements, including:
- Exchange notices (62% said they don’t feel prepared to deal with the notices)
- ACA penalties (60%), and
- Annual health care reporting (IRS Forms 1094/1095-C) (49%).
“As we meet with large employers, it has become clear that many don’t have the systems or processes in place to meet ACA compliance requirements,” said Vic Saliterman, senior vice president at ADP.
To clear the air, we provide the following guidance on these three areas of confusion:
Exchange notices – The ACA requires employers to provide all new hires and current employees with a written notice about the option to purchase coverage through public health insurance exchanges. This requirement is found in Section 18B of the Fair Labor Standards Act.
In general, the exchange notice must:
- Inform employees about the existence of the exchange and describe the services provided by the exchange and the manner in which the employee may contact the marketplace to request assistance;
- Explain how employees may be eligible for a premium tax credit or a cost-sharing reduction if the employer’s plan does not meet certain requirements;
- Inform employees that if they purchase coverage through the exchange, they may lose any employer contribution toward the cost of employer-provided coverage, and that all or a portion of this employer contribution may be excludable for federal income tax purposes; and
- Include contact information for the exchange and an explanation of appeal rights.
The Department of Labor has provided the following model exchange notices:
- You can find the model exchange notice for employers that do not offer a health plan here: http://wdol.gov/ebsa/pdf/FLSAwithoutplans.pdf; and
- You can find the model exchange notice for employers that offer a health plan here: http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf
Employers may use one of these models, as applicable, or a modified version, provided the notice meets the content requirements described above.
ACA penalties
Applicable large employers can incur penalties, which are known as “employer shared responsibility taxes,” if they either:
- Do not offer minimum essential coverage to at least 95% of all full-time employees. The penalty for not offering coverage is $2,000 for each full-time employee.
- Do not offer a plan that provides minimum value and is affordable (9.5% of wages). The penalty for failing to do so is $3,000 times the number of employees for which the employer fails to offer minimum value and affordable coverage and if those employees receive a subsidy to purchase coverage through a state-run exchange.
The final regulations include transition relief for 2015 that allows employers with 100 or more full-time employees (including full-time equivalent employees) to reduce their full-time employee count by 80 when calculating the penalty.
This relief applies for 2015 plus any calendar months of 2016 that fall within the employer’s 2015 plan year.
But, under the final regulations, employers that change their plan years after Feb. 9, 2014, to begin on a later calendar date are not eligible for the delay.
In subsequent years, the penalty amount is expected to be indexed by the premium adjustment percentage for the calendar year.
Annual health care reporting
Applicable large employers must report to the IRS information about the health care coverage, if any, they offered to full-time employees. The IRS will use this information to administer the employer shared responsibility provisions and the premium tax credit.
Large employers also must furnish to employees a statement that includes the same information provided to the IRS. Employees may use this information to determine whether, for each month of the calendar year, they may claim the premium tax credit on their individual income tax returns.
Annually, large employers must file with the IRS no later than Feb. 28 (March 31 if filed electronically) of the year immediately following the calendar year to which the return relates:
- IRS Form 1095-C (called “Employer-Provided Health Insurance Offer and Coverage”), and
- IRS Form 1094-C (called “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns”)
Transition relief provides that employers do not have to file information returns with the IRS and furnish statements to their full-time employees until 2016 for the 2015 year.
Thus, under this relief, the first statements to employees must be furnished by Jan. 31, 2016, and the first information returns to the IRS must be filed by Feb. 28, 2016 (March 31, 2016, if filed electronically).
Although the first information returns and employee statements are not due until 2016 for the 2015 year, employers may choose to file for the 2014 year.
The IRS has encouraged employers to voluntarily comply with these information reporting provisions for 2014 in preparation for the full application of the provisions for 2015. No penalties will be applied for failure to comply with these information reporting provisions for 2014.