5 Factors to Watch When Budgeting for ACA Expenses

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Since becoming a law in 2010, the Affordable Care Act (ACA) is beginning to come into its own. As the law moves into the next phase of implementation, there is a general recognition among CHROs that business processes in HR will need to remain engaged. That means monitoring key factors that contribute to budgeting for ACA expenses.

In 2015, large employers were already required to offer employees health coverage that meets ACA requirements, and report on it via the proper forms. For self-insured employers, the year also saw new rules regarding coverage for preventive care services, according to the Department of Labor (DOL). Both of these measures most likely increased costs for your organization — costs that should be in your 2016 budget.

But whether you budget ACA expenses in 2016 and beyond using a spreadsheet or a third-party service, it's helpful to know which factors need watching in the coming months.

Five Factors to Keep in Mind for 2016 ACA Budgeting

Your mileage may vary, but here are five aspects of the ACA that should be taken into account when budgeting for 2016:

  1. 95 percent cutoff for compliance. For 2016, you must offer ACA-compliant coverage to 95 percent of your full-time workers (that includes full-time-equivalent workers, or FTEs) and their dependents through age 26 — or budget for associated penalties, according to the IRS. This applies to ALEs (large employers as defined by the ACA) or any employer with at least 50 FTEs. The challenge for many organizations isn't recognizing the threshold itself but rather calculating the effective number of FTEs. For most employers, that means looking beyond a single pay period.
  2. Counting hours for FTEs. The ACA mandates several aspects of employee hours accounting: look-back measurement periods, an administrative period, or a stability period, depending on whether the employee is ongoing or a new hire. You should be up to speed on all those factors.
  3. Group- and affiliated-company accounting. Special rules apply to organizations that have common owners, affiliations or share a management company. If you're in that group, ACA-applicable head-count threshold monitoring may need to be performed in the aggregate.
  4. PCORI cost sharing. Group medical plans must fund the Patient-Centered Outcomes Research Institute at a rate of $2.17 per subscriber (not including dependents). The rate is a modest increase of nine cents per subscriber over the previous year for plans restarting on October 1, 2015, through the end of September 2016. Plan administrators will implement a change to the transitional reinsurance fee, as well, which was reduced from $44 to $27 for 2016. This fee applies to each covered family member. It's not material, but accurate implementation can add to HR or accounting department labor through after-the-fact adjustments and manual checking.
  5. Future Cadillac tax liability. While it's been delayed until at least 2020, the Cadillac tax is a 40 percent excise tax on high-cost health insurance plans. Whether such plans apply to all employees or only to a select class of employees, you'll still want to consider potential plan modifications. For example, different Cadillac tax thresholds are set for police, fire, mining and electrical occupational categories.

Cost-Cutting Opportunities

ACA compliance must be the main focus of budgeting for ACA expenses, but monitoring these specific aspects of the regulation can help avoid additional taxation and minimize accounting effort — or penalties. Otherwise, a sixth factor must be considered: costs associated with an IRS audit, promised to begin in 2016.

The impact is likely to extend beyond HR to line managers and, in some cases, even to top management. While CHROs should take the lead in determining the status of their company in relation to the law, the consequences of noncompliance will be far-reaching, highlighting the importance of understanding the ins and outs of the ACA.