"With large employers still obligated to offer affordable health plans or face potential penalties, it's essential for your organization to properly track and understand its HR, payroll, benefits and leaves data." — Ellen Feeney, Vice President, Counsel at ADP
Initially enacted in 2010 and subject to countless court challenges and proposed statutory amendments since then, you almost need a scorecard to keep track of the changes, actual and proposed, to the Affordable Care Act (ACA).
Perhaps the most notable example of how changes to the ACA create complexity for employers is the repeal of the federal individual mandate penalty. Effective this year, individuals will no longer be subject to a federal penalty for failing to enroll in health coverage. Several states and the District of Columbia, however, have enacted their own individual mandate requirements, and employers must still offer affordable health coverage to full-time employees — as well as satisfy ACA reporting obligations — or risk federal tax penalties.
The recent change to the individual mandate is a clear reminder that organizations must remain involved and attentive if they want to fully adhere to ACA compliance standards.
With the future of the ACA anything but settled, and the 2020 election already foreshadowing even more political wrangling over healthcare, organizations can benefit from a rundown of how they can remain compliant with the current laws and regulations.
That is why we have asked Ellen Feeney, Resident Health Care Reform Expert and Vice President Counsel at ADP, to answer some of our most frequently asked ACA questions. These include reviewing the expectations of employers after the elimination of the individual mandate, explaining the unique implications of the mandate in several states and the District of Columbia, and examining requirements regarding long-term leave.
Q: With the elimination of the individual mandate penalty, is the employer mandate still in place? If employees are no longer required to comply with the mandate at the federal level, does an employer's responsibilities change?
Feeney: Employers with 50 or more full-time and full-time equivalent employees must still offer affordable health coverage to their full-time employees.
The federal individual mandate penalty ended this year, but employers' responsibilities are still intact. In fact, nothing on the legislative horizon suggests the employer mandate will meet the same fate as the individual mandate. With large employers still obligated to offer affordable health plans or face potential penalties, it's essential for your organization to properly track and understand its HR, payroll, benefits and leaves data.
Even if you are compliant with respect to offering coverage, incorrect or incomplete data can erroneously show you failed to extend affordable coverage and raise a red flag in your IRS reporting, triggering potential penalties and associated headaches. ACA compliance requires organizations to understand the status of employees, especially how many hours they work and whether they are required to receive an offer of health coverage, and effectively track the types and costs of health plans you offer them.
Q: How does an employee waiving coverage impact an employer's ACA compliance and reporting?
Feeney: Some employees will undoubtedly waive health coverage, but that doesn't let employers off the hook. They still need to comply with the ACA employer mandate and related reporting requirements. For example, it's critical to prove your organization provided each full-time employee with a 1095-C form by Jan. 31, 2020. You'll need to give the IRS copies of those forms along with a corresponding 1094-C form.
These sorts of requirements have been difficult for some organizations to follow. The ACA requires employers to demonstrate that they're living up to their end of the health coverage bargain. In the many years since the ACA's employer mandate took effect, some employers have adjusted to the many wrinkles of compliance, but others still struggle.
Q: Let's say some employees have an individual health insurance mandate at the state level. Are there any related employer requirements?
Feeney: Yes. At the beginning of the year, New Jersey and the District of Columbia joined Massachusetts as the only jurisdictions to require individuals to carry health coverage in 2019 or pay a penalty. Employers in these jurisdictions must comply with reporting requirements. In 2020, California, Rhode Island and Vermont residents will face the same expectation, although employer reporting will not be required for now in Vermont.
Organizations that have employees in the District of Columbia and New Jersey will probably find it difficult to sort and track state-level reporting for those workers. ACA reporting can already be complicated for organizations with limited HR and benefits resources; adding a state mandate can make compliance even harder to meet.
Q: Are there any exceptions in the employer mandate's W-2 safe harbor rules to account for employees on long-term leave?
Feeney: There is no specific exception, but remember that an employee on disability leave is only considered to have "hours of service" that count toward full-time determination if they are on paid leave. This includes disability benefits if the cost of coverage was paid for by the employer or by the employee on a pre-tax basis. If the employee is considered ACA full-time during the leave, the employer typically must continue to offer affordable health coverage or face potential penalties.
There aren't any exceptions to the W-2 safe harbor rule (or the rate of pay safe harbor rule) for the leave period. The W-2 safe harbor rule was put in place to help employers ensure that an employee's cost of self-only coverage doesn't exceed 9.86% of their W-2 wages (for 2019).
Employee leave laws vary by state and municipality, causing many employers to struggle to keep track and remain compliant. Factor in the ACA and its specific requirements — such as calculating an employee's average hours of service — and handling employee leaves gets really complicated. Waiting until the end of a calendar year to prepare data on matters such as employee leave is likely to lead to mistakes and possible IRS penalties.
That's why it's important for organizations to have ACA expertise — whether on staff or through an outside service — and to treat ACA compliance as an ongoing event.
Wait! There's more. We'll answer other frequently-asked questions about the ACA in part two of the series.
Take the Quiz
Whether or not you're certain you have it down, take our ACA compliance quiz and see how your knowledge compares to our survey respondents. After taking the quiz, you'll have the opportunity to see your results and get a copy of the ADP report: ACA Compliance: Confidence, Confusion, and Change.