Although more employers say they can meet Affordable Care
Act (ACA) reporting requirements, many are relying on outside
expertise because of increased regulatory complexity.
MAGAZINE
Reproduced with permission from Benefits Magazine, Volume 53, No. 5, May 2016, pages 38-41, published
by the International Foundation of Employee Benefit Plans (www.ifebp.org), Brookfield, Wis. All rights
reserved. Statements or opinions expressed in this article are those of the author and do not necessarily
represent the views or positions of the International Foundation, its officers, directors or staff. No further
transmission or electronic distribution of this material is permitted.
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benefits magazine may 2016
by | Tom Perrotti
i
Despite Reporting
Requirements,
Employers Confident
in ACA Compliance
I
t has been six years since President Obama
signed into law the Affordable Care Act
(ACA)—legislation that many consider to be
one of the most comprehensive laws impacting
employee benefits since the Employee Retirement
Income Security Act of 1974.
After years of debate, business owners are accepting that ACA is here to stay but are still cautiously
navigating the changing health care landscape. According to the 2015 ADP Midsized Business Owners
Study,1 concern around ACA continues to decrease,
while anxiety over the volume of government regulations has risen significantly. Much of this may be
due to the continued high volume of new government regulations affecting employers.
Current and Future ACA Requirements
Today, employers that averaged at least 50 fulltime employees (including full-time equivalent
employees) on business days during the preceding calendar year are required to offer “affordable”
health insurance to their full-time employees (generally those averaging 30 hours or more of service
per week) or pay a penalty. They also are required to
track, record and report specific health care insurance and workforce information for each qualifying
employee to meet the regulatory requirements of the
Internal Revenue Service (IRS).
One of the newest compliance challenges employers face is the implementation of two new taxfiling forms, Form 1094-C and Form 1095-C, which
employers were required to share with employees
by the deadline of March 31, 2016 (an extension for
the inaugural reporting year).
• Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) is used to identify information for both an employee and
employer, including the employer’s offer of
health coverage and an employee’s record of
health insurance.
• Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage
Information Returns, is used to summarize
and transmit Forms 1095-C to IRS.
To accurately populate these forms, employers
were required to pull data related to payroll, human
resources, leave of absence and health care benefits
along with various codes for different types of employees. Employers must file their finalized Forms
1095-C and 1094-C to IRS by May 31, 2016, if filed
by paper, or by June 30, 2016, if filed electronically.
Noncompliant employers potentially face a $260 fee
for each IRS Return or Employee Statement that’s
inaccurately reported, equivalent to a total of $520
for both forms. The total penalty for any employer
can be as high as $6 million annually. However, IRS
may be more lenient on fines for incorrect forms
this first year to help employers adjust to this new
filing process as long as employers submit the forms
on time.
According to the ACA Employer Confidence
Study2 released by ADP in January before the filing
extension was announced, two in five employers
said they were unfamiliar with the forms and nearly
may 2016 benefits magazine
39
aca reporting
learn more
Education
ACA University
Virtual online learning environment free to members.
Visit www.ifebp.org/acau for more information.
Washington Legislative Update
May 23-24, Washington, D.C.
Visit www.ifebp.org/washington for more information.
Overview of ACA
Visit www.ifebp.org/elearning for more information.
From the Bookstore
Health Care Reform Quickfinder Handbook, 2016 Edition
Thomson Reuters. 2015.
Visit www.ifebp.org/books.asp?9066 for more details.
New Health Care Reform Law: What Employers Need to Know—A Q&A Guide
Paul M. Hamburger, Esq., and Peter J. Marathas, Jr., Esq. Thomson Information
Services. 2015.
Visit www.ifebp.org/books.asp?9063 for more details.
one in five believed they were at risk of
not complying with Form 1095-C requirements. As a result, one in ten midsized businesses was planning to file for
an extension at that time.
IRS estimated that employers would
spend an average of four hours completing Form 1094-C and an additional
12 minutes completing each Form
1095-C (one per employee). This may
be a conservative estimate considering
the time spent understanding, tracking
and compiling the information needed
to begin this new filing process.
Adding to the administrative complexity, Forms 1095-C involve an entirely
new IRS electronic filing system. IRS developed the Affordable Care Act Information Return (AIR) System specifically
for ACA information returns. Use of the
system is mandatory for employers submitting 250 or more Forms 1095-C.
In the future, employers may need
to respond to information requests
both from state and/or federal health
40
benefits magazine may 2016
care exchanges and IRS. Exchange notices will inform an employer about any
employees who are awarded subsidized
health coverage through an exchange.
Upon receipt of the notice, the employer can respond if, for example, the
employer offered affordable coverage or
was not required to offer coverage because the employee was not full-time.
In addition, IRS will issue employer
shared responsibility penalty notices,
and employers will be expected to respond with relevant details including
the full-time status of the employee(s) in
question and whether coverage offered
was affordable. The first IRS notices of
this kind are expected to start around
November 2016, and the notices will relate to offers of coverage for all months in
2015 (going back to annual enrollment
in fall 2014). It’s important for employers
to respond in a timely fashion to notices
from both the exchanges and IRS.
Looking ahead, starting in 2020 employers can expect to pay an excise tax
commonly referred to as the Cadillac
tax if they offer certain high-cost health
plans. This tax will be imposed on employers with group health plans that exceed a certain fixed dollar amount value.
For self-insured plans that exceed a value
of $10,200 for individuals and $27,500
for families (for multiemployer plans,
$27,500 is the threshold for both individual and family plans), the employer will
pay a 40% excise tax on every dollar above
the defined limit. This could be a significant cost for plans that exceed the limits
by even a few hundred dollars per year.
IRS is expected to provide clarification on
how the cost of on-site medical clinics will
be taxed under the law and define which
entity is liable for paying the tax.
Furthermore, new rules outlining
nondiscrimination testing requirements for fully insured health plans are
expected this year. As a result, employers with fully insured plans may need to
act quickly and develop new eligibility
rules or reduce benefits if existing plans
favor highly compensated executives
and offer them benefits not available to
all qualified employees.
Growing Confidence
in ACA Compliance
Despite the ongoing evolution of
ACA regulations, the 2015 ADP Midsized Business Owners study showed
confidence has increased, year over year
for the last few years, in organizations’
compliance with ACA regulations. The
latest study found that three-quarters of
midsized business owners and seniorlevel executives expressed confidence
that their organization will be compliant with all new ACA regulations.
However, it is troubling that while so
many employers expected they will be
compliant, only three out of five surveyed
aca reporting
takeaways
• Employers must file their finalized Forms 1095-C and
1094-C to IRS by May 31, 2016, if filed by paper, or
June 30, 2016, if filed electronically.
• IRS is expected to issue the first employer shared responsibility penalty notices in November 2016.
• The Cadillac tax for employers that offer certain high-cost
health plans goes into effect in 2020 and could create a
significant cost for plans.
• New nondiscrimination testing requirements for fully
insured health plans are expected this year, which may
require some employers to develop new eligibility rules or
reduce benefits.
• The 2015 ADP Midsized Business Owners Study showed
that organizations’ confidence in their compliance with
ACA regulations is growing, with three-quarters of midsized business owners and senior-level executives expressing confidence that their organization will be compliant.
• Despite that confidence, only three out of five survey
respondents were confident that they understand all of the
new ACA regulations, and less than two-thirds think they
have the tools and information needed to make the best
health benefits decisions.
bio
were confident that they understand all of the new ACA regulations and less than two-thirds think they have the tools and
information needed to make the best health benefits decisions.
Nearly half of survey respondents said they have a plan
in place to lower the cost of medical insurance. Further, less
than half felt very or extremely prepared to manage benefits
eligibility based on ACA criteria (45%) and affordability
(44%) requirements.
For the 60% of business owners who reported their internal staff would handle the majority of ACA tasks this year,
many may have gotten a wake-up call once they realized how
time-consuming reporting was for the 2015 calendar year.
While businesses are more confident in their ability to
comply with ACA, they may be relying more on third-party
compliance experts and, therefore, don’t feel the need to fully
understand all of the details themselves. Nearly three out of
five survey respondents said they think ACA has made benefits administration more complex.
Nearly one-quarter of the respondents said they are more
likely to consider outsourcing benefits, up from 9% in 2013.
They also indicated they are most likely to turn to benefits
brokers, agents, HR/benefits consultants and benefits administration vendors for advice when selecting a benefits solution.
Adding ACA compliance on top of the increasing amount
of government regulations businesses are already encountering can put a heavy burden on many HR departments. If
employers are not staffed properly and don’t have the needed
compliance expertise, they can open themselves up to significant risks. Many companies don’t realize that trying to solve
compliance challenges with only internal resources can potentially cost more than paying an outside vendor to help. Compared with the total cost of processes and tools that may need
to be put in place and the people that may need to be hired,
employers may save money by hiring a third-party expert.
Now is the time for business owners to analyze and assess how smoothly they handled their first ACA go-round
so that they can correct their course and decide whether new
strategies need to be implemented. Companies that found
themselves pulling data from multiple disparate administrative systems may want to consider an integrated HR system
that can collect the required information from various departments without a great deal of effort from various staff
members.
While the face of health care reform could change depending on which political party wins the presidential election this
Tom Perrotti is president of ADP
Major Account Services and ADP
Canada, which provide human
capital management (HCM) services
to more than 60,000 businesses with
50 to 1,000 employees across the United States
and Canada. He received a bachelor’s degree in
business administration from New England
College.
year, it’s likely that the new ACA compliance responsibilities
will be the new norm and soon become as commonplace as
filing taxes. As such, it’s important for business owners to use
this year’s experience as a learning opportunity and make
changes now to avoid penalties in coming years. Endnotes
1. ADP Research Institute®, 2015 ADP Midsized Business Owners Study,
available at www.adp.com/solutions/midsized-business/resources/article
.aspx?id=5140EEBE-7A27-423B-BC17-36DF8CACCE87.
2.
ADP Employer Confidence Report, ADP, released January 2016.
may 2016 benefits magazine
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