This article was updated in June 2019.

When it comes to Affordable Care Act (ACA) compliance, there are two primary approaches: do the work yourself or outsource it. Outsourcing ACA compliance and reporting will add a line item to your budget, yes; but it can potentially mitigate a very expensive penalty. It is a strategy worth considering for that reason, and because outsourcing can help you avoid the headaches that come with a do-it-yourself approach. Additionally, with the changes to health care policy and the uncertainly around the ACA, it may not make sense for an organization to add staff, effort and expense to handle compiance tasks internally when the outcome is unknown.

ACA Penalties

There are two different types of penalties under the ACA. The "A" penalty applies to noncompliance with the employer mandate itself — in other words, failing to offer full-time employees affordable coverage that provides minimum value. The A penalty has no maximum dollar amount. The "B" penalty applies for failure to report the details to employees and the IRS accurately and on time. This penalty has a cap of $3 million.

You might be fulfilling the employer shared responsibility provision, but if you don't correctly report that to your employees and the IRS, you could face steep penalties. You must provide Form 1095-C to full-time employees and transmit Forms 1094-C and 1095-C to the IRS. Employers can receive a combination of both A and B penalties.

Avoid Penalties by Outsourcing

Avoiding ACA penalties is one big reason organizations opt to outsource ACA monitoring and reporting. When you use a third party to assist with your ACA compliance, you don't have to become an expert or train your staff. Outsourcing ACA activities means your data is professionally consolidated and accurately transmitted to the IRS, but you are still ultimately held responsible for your own compliance. That's why it is important for your outsourcing partner to help you review your data and business practices as a whole through the lens of health compliance.

For example, there are some aspects of ACA compliance that your organization has to address. If you have 50 or more full-time equivalent employees and you're not offering affordable, minimum value health insurance to at least 95 percent of full-time workers, you're open to penalties if they end up getting coverage in the exchange and receiving a premium subsidy. If you're outsourcing ACA monitoring and reporting, your vendor can explain this aspect of compliance, but it's up to you to follow through with the coverage offer.

For a lot of organizations, that's the easy part. You're willing to offer coverage as required. But how do you figure out the details of when coverage has to be offered, or whether the premium contribution you make is enough for the coverage to be considered affordable? What information do you report to the IRS and when? What do you do if an employee rejects your offer of coverage and purchases coverage in the exchange instead?

ACA Compliance Vendors

Outsourcing ACA compliance helps address confusion around those types of questions. Someone else will handle tracking your employees' full-time status and maintain a record of coverage offers. ACA informational reporting to the IRS will be handled by your compliance vendor, and they will let you know what information they need you to provide, which is easier than digging through regulations.

There's no one-size-fits-all solution to ACA compliance, monitoring and reporting. For some organizations, an in-house solution can work if you capture the prerequisite data and have qualified staff. Even so, it is important to have a resource for consultation and assistance if a question or penalty notice arises. But for those who are open to outsourcing, reduced exposure to penalties and having a trusted partner to help navigate compliance can be worth that line item in the budget.

Go Deeper

Read how Elwyn, Inc. automated their health care reform compliance process.

For more Health Care Reform insights and sample penalty letters/responses, watch ADP's webcast Workplace Compliance Spotlight: It's Been Quiet on the Health Care Front….Or Has It?

Subscribe to ADP's Eye on Washington to say up-to-date on the latest legislative changes.

Tags: Midsize Business Large Business Research & Insights Risk and Compliance Articles Outsourcing HR Finance