Maintaining ACA Compliance in 2023: Your Questions Answered

Clipboard with paper on which ACA Affordable Care Act is printed

Changes in Affordable Care Act (ACA) enforcement are shifting compliance requirements for applicable large employers (ALE) — that is employers with 50 or more full-time employees. Organization leaders should understand what's changing and start strategizing now to develop a holistic plan for ACA reporting and compliance to close out the year. This is even true for employers that have met ACA requirements for years with no IRS penalties or notices.

The Affordable Care Act (ACA) is one of those phrases that can make those responsible for ACA compliance want to hide under a desk. Often surrounded by jargon, legal language, and confusion, ACA requirements and reporting can feel like a huge challenge. This article will provide an overview of this recent webcast: The ACA and Health Care Reform: Focus on Federal and State Developments. Experts Alison Duronslet, Lead Government Compliance Analyst; Pete Isberg, Vice President of Government Affairs; and Michael New, Compliance Delivery Manager, led the discussion on how this year's legislative changes will affect businesses and reporting.

What is the ACA?

The Affordable Care Act is a law enacted in 2010 that, among other things, requires businesses with more than 50 full-time employees to offer affordable healthcare options to their full-time employees who meet minimum standards. Well, "what is considered affordable?" you may ask.

When it comes to the ACA, affordability is determined by a percentage of income threshold. In 2022, for coverage to be considered affordable it must cost no more than 9.61 percent of an employee's annual salary. In 2023, that number will change to 9.12 percent. Employers are required to report on healthcare coverage offerings by providing a statement showing that affordable health coverage was offered to at least 95 percent of full-time employees. To read more about ACA requirements, minimum level of coverage and affordability can check out this additional resource: Understanding the Affordable Care Act — where we've been and what to do next.

What are the changes to the ACA?

While there are multiple changes to ACA compliance and reporting requirements, Pete Isberg noted that employers should expect heightened enforcement, in part because the 2022 Inflation Reduction Act provided an additional $80 billion in supplemental funding for the IRS, which is roughly a 60% budget increase. Isberg breaks down what this means from a practical perspective: "The additional funding was intended for increased enforcement, so the IRS is suddenly going to be much more capable of enforcing ACA requirements than it has been in the past." Isberg also notes that the IRS is playing a bit of catchup from years past, as well as the COVID-19 pandemic.

Recent treasury reports found that the IRS issued only a fraction of the notices it could have in recent years. Isberg's advice is this: "Our message here to employers is, don't assume that because you haven't gotten a notice in the past that you're doing everything right." Isberg encourages employers to be careful about analyzing their systems, offerings, and data to make sure they understand which employees might qualify for subsidized coverage.

In addition to a new level of enforcement coming, the IRS has, in the past, provided relief from penalties to companies that show they made a good-faith effort to comply with ACA requirements when ACA reporting was done incorrectly or incompletely. However, the Treasury Department and the IRS stated that good-faith relief from penalties will no longer be in effect. Employers will be held accountable for not abiding by ACA requirements.

Do I need a 1095-C to stay in ACA compliance?

Yes, if you are an ALE, you do need to file your Forms 1094-C/1095-C to comply with ACA requirements. Filing these forms shows the type of coverage you offered to your employees as well as the cost of the lowest premiums that were available to each employee throughout the year. The deadline to file with the IRS is March 31. In addition, the forms must be provided to full-time employees by Jan. 31, a deadline that has been extended each year. As of this year, it is now permanently extended. Alison Duronslet notes: "The IRS has extended the deadline to provide an additional 30 days, making March 2nd the deadline for furnishing forms to employees." Regardless of the deadline, it's still important to file Forms 1094-C / 1095-C on time, because penalties will be assessed and enforced for late filings. Alison mentions "after the deadline, a tiered penalty structure kicks in. The first tier is from April 1st through April 30th. So, if you're filing any late or even corrected forms during that timeframe, you could be subject to a $50 penalty per form. Then the second penalty tier runs from May 1st to August 1st and for anything filed during that time, the penalty increases to $110 per form."" After August 2, late forms will also be assessed a $280 fee per form. Let's just say there's a lot of incentive to file early and accurately.

How do I stay in compliance with ACA requirements?

Michael New talks through different strategies ALEs can use to reduce the risk of penalties. "It's really about developing a holistic ACA strategy that will allow you to take control and reduce risk." Michael mentions an easy one to begin with, which is offering benefits to at least 95% of your full-time employees, and once you've identified who should be offered coverage, make sure those employees do receive those benefit offerings clearly, correctly and promptly. Michael also touches on making sure the coverage being offered meets affordability standards according to the ACA, which is something you should work on proactively with your benefits team.

Another important tip Michael shared was enlisting the advice of true ACA experts. Whether that's via an outside consultant or working with a partner through your HR management software, it's important to work with an expert who really knows ACA and who can help you utilize technology to gather insights from your data, which will ultimately give visibility to risk in your organization.

Filing ACA reports on time is also a huge risk mitigation factor, which is why documenting benefits offers and other relevant data throughout the year is a crucial step, allowing you to file on time. Michael puts it like this: "Document, document, document. Set up your documentation processes and keep track of your decisions throughout the year. There is a lot of complexity that you want to track, and that way, if you get any IRS inquiries in the future, your documentation can help you piece that puzzle together."

The wrap-up

ACA compliance and reporting can be an overwhelming part of managing HR for your company. But putting in the work throughout the year to document practices, offers and decisions can save you real money down the road by avoiding IRS penalties and showcasing best practices for your employee benefits.

For more information on relevant regulatory and legislative updates, register for and view the on-demand webcast: The ACA and Health Care Reform: Focus on Federal and State Developments.

Related reading: You've received an ACA penalty notice. Now what?