Enacted in 2010, the Affordable Care Act (ACA) established guidelines for comprehensive health care reform. The ACA provides guidelines for how employers are to provide, administer and report on health coverage. Failing to provide health coverage or failing to accurately report on offered coverage can be detrimental to an organization’s bottom line. In 2015, a number of the ACA compliance reporting mandates go into effect.
Determining Employee Eligibility
The ACA mandates how insurance is to be provided for full-time equivalent employees (FTEs). While many organizations have different standards, the ACA qualifies individuals as FTEs once the employee averages more than 30 service hours per week. Service hours include:
- Regular and overtime hours worked.
- Paid time off, including vacations and holidays.
- Unpaid time off as covered by government programs, such as FMLA and USERRA.
In order to verify service hours, a number of departments, including payroll, workforce management and benefits, need to collaborate to ensure accurate reporting. Failing to correctly qualify employees and offer them health coverage can result in costly penalties. In fact, failing to accurately categorize employees makes generating accurate ACA compliance reporting nearly impossible.
ACA Compliance Reporting Data Points
In order to compile reports for the IRS, an organization must have ACA compliance reporting capabilities in order to provide:
- Key dates, including date of hire and date of termination for all employees.
- Documentation for all paid hours, both for hours worked and paid time off, including jury duty, holidays and vacations.
- Documentation for all unpaid hours that were covered by leave.
- Back up information for employee health insurance contributions.
- Certification that provided insurance meets federal requirements.
- Proof that employees were notified of their eligibility.
All of the above information must be stored for seven years in the event of an audit. Additionally, well-kept records can help to defend against penalties that were assessed incorrectly.
IRS ACA Compliance Reporting
Beginning with the 2015 benefit year, organizations are required to provide the IRS with information on each employee’s health coverage. Similar to how W-2s are filed with the IRS, this documentation will be due at the beginning of the following year.
Documentation for the 2015 benefit year must be submitted by February 28, 2016 if being filed manually, or March 31, 2016 if the documentation is electronically submitted. A copy of these forms must be provided to employees no later than January 31, 2016. Failing to provide employees with documentation can result in a $200 fine per return.
Reporting Requirements
All large employers, those with 50 or more FTEs, are required to furnish coverage information to the IRS on a monthly basis. Required information includes:
- Employer information, including contact information and documentation outlining if qualified employees were offered health coverage.
- Employee information, including the months each employee was eligible for health coverage, how much the employee was to pay out of pocket for coverage and information about the plan the employee was enrolled in.
Options for Simplified Reporting
The IRS provides three options to employers for simplified reporting:
- Option One: Employers are able to use a simplified annual statement if they are able to certify that:
- All FTEs were offered minimum essential coverage.
- All FTEs were offered coverage that provides minimum value.
- The cost to employees did not exceed 9.5 percent of the federal poverty level.
- All FTEs were offered coverage for themselves, their spouse and dependent children.
- Option Two: For 2015, employers that select this option will not be required to provide documentation for individuals who did not receive qualifying offers for all 12 months of the year. This is possible if the employer can certify that:
- At least 95 percent of FTEs were offered minimum essential coverage.
- At least 95 percent of FTEs were offered coverage that provides minimum value.
- The cost to employees did not exceed 9.5 percent of the federal poverty level.
- At least 95 percent of FTEs were offered coverage for themselves, their spouse and dependent children.
- Option Three: Under this option, organizations are not required to report on who their FTEs are on a monthly basis. In order to use this option, employers must be able to certify that:
- At least 98 percent of FTEs were offered minimum essential coverage.
- At least 98 percent of FTEs were offered coverage that provides minimum value.
- The cost to employees did not exceed 9.5 percent of the federal poverty level.
- At least 98 percent of FTEs were offered coverage for themselves and dependent children. Spouses are not required to be offered coverage for this option.
Planning Requirements for ACA Compliance Reporting
Understanding the ACA compliance reporting requirements can be complicated and will take time. Therefore, adjusting for reporting requirements should not be put off until the end of the year. In order to prepare for the ACA compliance reporting requirements, organizations should take the following steps:
- Take time to review the ACA and what it means for your organization.
- Review the IRS reporting paperwork to understand what each section is asking for and how your organization can provide accurate information for each covered individual.
- Create a methodology for reviewing an employee’s service hours, as defined by the ACA, to monitor employee eligibility on a monthly basis.
- Establish a way to review and report on employee health coverage options and enrollment on a monthly basis
- Work with your health coverage provider to understand what reporting capabilities they have, or will have, for providing ACA reporting.
- Identify if systems changes or upgrades are necessary to be able to accurately report required data.
- Work with third-party vendors, including the payroll processor, to determine what, if any, services are available for ACA reporting support.
- Verify that all necessary action has taken place prior to December 31, 2015.
Putting in place all of the requirements for ACA compliance reporting can be an arduous task for organizations. It is highly recommended that organizations partner with highly qualified, knowledgeable consulting firms to ensure they are ready for the reporting requirements.
