The Affordable Care Act (ACA), also known as Obamacare, is a healthcare reform law that was enacted on March 23, 2010, by President Barack Obama to increase access to affordable health insurance for underinsured or uninsured Americans. While providing health insurance to individuals may seem simple in principle, there are significant requirements and nuances that businesses need to adhere to in order to remain compliant.
So, what is ACA compliance, and what is ACA compliance reporting? ACA compliance is the practice of complying with the regulations and requirements outlined in the provisions of the Affordable Care Act. ACA has several employer mandates that companies must follow to remain compliant. Compliance is achieved through ACA reporting, where employers report employee healthcare to the IRS.
However, there’s a lot more that goes with Affordable Care Act compliance, and this guide will walk you through the intricacies of ACA compliance to ensure you’re complying with the provisions of Obamacare. Below, you’ll learn more about the importance of ACA compliance for employers and employees, as well as who must comply with ACA, its requirements and more.
Importance of ACA Compliance
ACA compliance is essential for a variety of reasons for employers and employees. The main reason to remain compliant with ACA is that it’s federal law. Noncompliance can result in fees and penalties that can hurt your business and cost you money. With that said, let’s look at the importance of ACA compliance for employers and employees.
Importance of ACA Compliance for Employers
Being an employer comes with many responsibilities. One of those responsibilities is remaining compliant with federal and state laws, including federal. Depending on the size of your company and the number of full-time employees you have, you might need to offer affordable healthcare coverage.
- Legal compliance: One of the top reasons why employers need to ensure ACA compliance is to abide by federal law. The Affordable Care Act requires certain employers to provide affordable healthcare coverage. Failing to do so can result in penalties, fines and legal liability that can hurt their bottom line.
- Employee satisfaction: Not only does ACA compliance ensure you’re abiding by the law, but it can also increase employee satisfaction. You can help reduce the stress and burden of expensive healthcare costs by providing employees with affordable healthcare coverage. In turn, it can help improve your employees’ morale and productivity.
- Cost savings: Failing to comply with ACA regulations can result in expensive fees and penalties that can cost your business money. Failing to comply with the ACA can decrease employee morale, leading to lower employee retention rates and reduced productivity, which can harm your business. By complying with the ACA, you can save your company significant money.
- Reputation: Not complying with the ACA can damage your reputation and tarnish your brand image. In any business, reputation matters; if you’re not committing to ethical business practices, it can turn customers and top talent away.
These are some reasons why Affordable Care Act compliance is essential if you’re an employer. But ACA compliance doesn’t only benefit businesses; it can benefit employees, too. Now, let’s look at the importance of ACA compliance for employees.
Importance of ACA Compliance for Employees
While ACA compliance is necessary and advantageous for employers, it’s also important for employees. Here are some of the ways ACA compliance is essential for your staff:
- Access to affordable healthcare coverage: One of the top reasons ACA compliance is important for employees is that it provides them access to affordable healthcare coverage. With the ability to choose the health insurance coverage that works for them, employees can better manage their healthcare costs and receive necessary healthcare services to maintain their health and quality of life.
- Increased productivity: When employees know their basic needs are met, they can focus on other areas of their lives, such as their careers. With peace of mind that they can receive healthcare services at an affordable cost due to their insurance coverage, employees can exhibit increased rates of productivity that can help advance their careers and improve the organization for which they’re working.
- Reduced out-of-pocket expenses: ACA limits the amount of out-of-pocket expenses individuals are responsible for paying for the healthcare services they receive. This can help employees save money and avoid unaffordable medical bills while receiving necessary healthcare services.
- Preventative care service coverage: Another stipulation in the Affordable Care Act is eliminating cost-sharing for preventative care services. This means employees can receive necessary preventative care services, such as vaccinations and cancer screenings, without paying out-of-pocket expenses.
Overall, there are many benefits for employees when it comes to their employers complying with the ACA. ACA compliance ensures employees have access to the healthcare services they need without the fear of incurring expensive medical costs that can result in financial hardship.
Who Must Comply With the ACA?
Now that you know what ACA compliance is and why it’s important for employers and employees, who must comply with ACA? ACA compliance is required for businesses with an average of 50 or more full-time employees. These businesses, called Applicable Large Employers (ALEs), must offer affordable healthcare coverage to their employees. ALEs must provide healthcare coverage to at least 95 percent of its full-time employees, or they can face noncompliance penalties.
A full-time employee is any employee who works more than 30 hours per week or works at least 130 hours during the month, while a part-time employee works less than 30 hours per week. However, ACA considers full-time equivalent employees to ensure businesses don’t avoid ACA requirements by only hiring part-time employees. To determine the number of full-time equivalent employees, employers must total the hours worked by part-time employees during the month but not include more than 120 hours for each employee.
For example, if Company A has 35 full-time employees and 30 part-time employees who each work 96 hours during the month, the IRS will consider them to have 24 full-time equivalent employees for 59 full-time employees. Here’s how it works:
- Company A combines the service hours for all part-time employees (30 part-time employees x 96 hours each = 2,880 hours).
- Company A then divides the total number of hours worked by part-time employees by 120 to get 24, which is the number of full-time equivalent employees for each month of the calendar year (2,880 hours / 120 hours = 24 full-time equivalent employees).
- Company A totals the number of full-time employees for the calendar year (35 x 12 = 420).
- Company A totals the full-time equivalent employees for the calendar year (24 x 12 = 288).
- Company A adds the two numbers and divides by 12 to get 59 [(420 + 288 = 708) / 12 = 59)
- Overall, Company A has 65 employees (35 full-time and 30 part-time) for each month of the calendar year and 59 full-time employees for ALE determination due to the hours of service by full-time equivalent employees.
What Does ACA Compliance Mean for Employers?
For employers, ACA compliance means following the provisions set forth by the Affordable Care Act to avoid penalties and fees while ensuring employees have access to healthcare coverage. These provisions apply to ALEs with 50 or more full-time employees.
However, it’s important to note that ACA compliance can vary for different types of plans, including grandfathered plans, short-term health insurance and healthcare-sharing ministry plans.
- Grandfathered plans: Grandfathered plans were in place before 2014 and have been in effect as of March 23, 2010 — the day ACA went into effect. Grandfathered plans must comply with some ACA regulations but are exempt from others. These exemptions vary depending on the plan.
- Short-term health insurance: Also known as temporary health insurance, short-term health insurance is not regulated by ACA and is for individuals who missed the open enrollment period or did not qualify for employer-sponsored coverage or Medicaid.
- Healthcare-sharing ministry plans: A healthcare-sharing ministry plan is an alternative to traditional healthcare insurance and is typically offered by religious-based organizations that share medical costs among members. These plans are exempt from the ACA, including the requirement to provide minimum essential coverage.
Additionally, there are exceptions regarding ACA compliance, meaning some organizations with more than 50 full-time employees might not be required to abide by ACA. For example, religious organizations like churches and other houses of worship are exempt from some ACA provisions, such as offering coverage for birth control but are still required to provide healthcare coverage.
What Does the ACA Require of Employers?
The Affordable Care Act has a set of employer mandates in place to ensure businesses comply with the provisions outlined in ACA. The main requirement is for ALEs with 50 or more full-time employees to offer 95 percent or more of full-time equivalent employees and their dependents with affordable health insurance coverage. In order to remain compliant, ACA requires the following from employers:
- Minimum essential coverage: ALEs offering health insurance coverage must ensure the health insurance plan provides minimum essential coverage, which means it covers a set of services, such as emergency services, preventative healthcare services, prescription drugs and hospitalizations.
- Minimum value: The health insurance coverage must provide minimum coverage, meaning at least 60 percent of the total cost of services is covered.
- Affordability: ALEs must also ensure the health insurance plans chosen are affordable for employees, meaning the employee’s premium for employee-only coverage cannot be more than 9.5 percent of their household income.
- Employee notices: Employers must also provide specific notices, such as outlining their coverage options.
- Reporting: ACA reporting is an essential requirement for employers, which means businesses need to report health insurance coverage information to the IRS, such as information about the coverage they offer and the number of employees enrolled. ACA reporting is done with Forms 1095-C, which goes to the IRS, and a copy is provided to employees, as well as Form 1094-C, which only goes to the IRS.
Companies can avoid expensive fees and penalties that can damage their business by complying with these ACA requirements.
What Are the Consequences of Noncompliance?
Applicable Large Employers must file Forms 1095-C and 1094-C with the IRS annually to show they complied with ACA. Failing to file these forms or filing these forms with mistakes can result in the IRS sending a penalty notice.
There are various penalties depending on the provision with which the employer failed to comply. For example, failing to offer minimum essential coverage to at least 95 percent of full-time employees and having at least one full-time employee purchasing healthcare through the marketplace and receiving a premium tax credit can result in a 4980H(a) penalty. This penalty is $229.17 per month or $2,750 per year for each employee. Other common ACA noncompliance penalties include the failure to file penalty, failure to furnish penalty and 4980H(b) penalty.
ACA compliance is essential for ALEs with 50 or more full-time employees. These businesses must offer affordable healthcare coverage and comply with ACA reporting requirements to the IRS.
Working with an employer services provider like Experian Employer Services can help. At Experian Employer Services, we offer a wide range of workforce management solutions that can help your HR and payroll tax teams, including ACA reporting services. Contact us today to find out how we can help.