The Affordable Care Act (ACA) has been the law of the land for more than six years, but employer compliance has only been fully implemented this year. From a high level, compliance seems simple enough — large employers have to provide quality, affordable coverage for full-time employees, and they have to let the IRS know whether they offered coverage and whether employees accepted that coverage.
But, in truth, it's far from simple. According to ADP research, the four top challenges for ACA compliance are accurately reporting data to the IRS, calculating and complying with affordability rules, tracking employee eligibility for coverage and responding to marketplace notices.
So what makes these areas challenging in terms of compliance with the ACA?
1. Accurately Reporting Data to the IRS
Data reporting is one of the top challenges for ACA compliance because of the sheer volume of information involved, and the fact that the data itself is often spread across separate departments — human resources, payroll and benefits — some of which might already be outsourced to various vendors who don't necessarily communicate with one another. Consolidating your human capital management (HCM) data with one vendor to help with all your ACA compliance and reporting can simplify this process, but if you're handling your own ACA reporting, data consolidation and reconciliation throughout the year will make the reporting process smoother.
2. Complying With Affordability Rules
Affordability seems straightforward, but the details are what make it one of the top challenges for ACA compliance. According to the IRS, large employers must offer coverage that costs full-time employees no more than 9.66 percent of their household income, for employee-only coverage (the affordability percentage threshold is increasing to 9.69 percent of household income in 2017). Additionally, employers have to take into account multiple other considerations, such as how wellness programs and incentives can affect affordability.
The ACA allows employers to utilize one of three safe harbor methods for ensuring coverage is affordable. Instead of using household income, the employer can use an employee's W-2 wages, rate of pay or the federal poverty level.
How do you know which one you should use?
- W-2 wages: This works best if you have mostly full-time employees working 40 hours per week. Note that if your employees have pretax contributions taken from their paychecks, those amounts won't show up on the W-2, meaning the maximum amount they can be required to pay for their health insurance will be lower.
- Rate of pay: This method works well if you have hourly employees, particularly if they're considered full-time but work fewer than 40 hours per week. You can calculate affordability based only on your lowest-paid worker, and then apply the same premium threshold to all employees. Monthly affordability is based on 9.66 percent of 130 times the hourly rate.
- Federal poverty level: This method is easiest but tends to give the lowest premium threshold. Other methods would allow most employers to require larger employee contributions for health insurance. Start with the federal poverty level ($11,880 in 2016, according to the U.S. Department of Health and Human Services) and divide by 12. If premiums aren't more than 9.66 percent of that amount, coverage is considered affordable.
3. Determining Employee Eligibility
Large employers must offer coverage to at least 95 percent of full-time employees. But, that's not always as simple as it sounds. First, you have to implement a method for determining which employees are full-time. You also have to keep track of coverage offers — and whether each employee accepted or declined — so you can accurately report that information.
4. Responding to Marketplace Notices
Marketplace notices are the method by which the marketplace lets employers know their employees have qualified for a subsidy (exchange subsidies trigger employer mandate penalties, so this is important). When a person enrolls in coverage and indicates they aren't eligible for employer-sponsored health insurance, and receives a subsidy, the exchange will send a notice to the employer.
The notice doesn't mean you're subject to an ACA penalty, but it could indicate one is forthcoming. It's essential to implement a strategy for dealing with notices promptly, and for ensuring there's no retaliation against employees.
These challenges in terms of complying with the ACA. But with a solid strategy for addressing ACA compliance — either in-house or with outsourcing — they should at least get easier.