In 2010, President Obama signed the Affordable Care Act (ACA) into law. ACA significantly impacts how employers offer, administer and keep records regarding health care benefits. Businesses that are not in ACA compliance face extensive fines. To avoid costly consequences and penalties, it is important that your organization understands the requirements of the ACA and what steps your organization must take to achieve ACA compliance.
ACA Employer Sizes
The size of your organization determines which ACA guidelines apply. The ACA provides guidelines for the following organizational sizes:
- Fewer than 25 full-time equivalent employees
- 25 to 50 full-time equivalent employees
- 50 or more full-time equivalent employees
For the purposes of ACA, individuals that average 30 or more hours per week are considered full-time employees. These hours do not have to be worked. Paid sick time, vacation time and paid holiday hours count towards this threshold. Certain unpaid time is also used in the full-time equivalent calculation, like time off that is covered by the Family Medical Leave Act (FMLA).
If a business has fewer than 50 full-time employees, that business is not subject to the penalties applied to larger organizations. However, businesses that are nearing 50 full-time equivalent employees must pay attention to hours worked. Once the threshold of 50 full-time equivalent employees, all other requirements immediately go into effect.
ACA Timeline
The ACA has a gradual timeline, with different aspects of the guidelines required each year until the process is fully complete in 2018. Major initiatives include:
2014
- Workplace Wellness Credits: The ACA provides incentives for organizations that have employee wellness programs. Under new guidelines, organizations can now receive up to 30 percent of the cost of health care. If the wellness program addresses smoking or another use of tobacco, the amount increase to up to 50 percent.
- Small Business Tax Credit: Organizations with less than 25 full-time equivalent employees are eligible for tax credits to help offset health insurance costs. Businesses are only eligible for the credit if their health insurance was purchased through the Small Business Health Options Program (SHOP).
2015
- Penalty for Failure to Offer Health Coverage: Penalties for not offering health benefits to employees, for organizations with 100 or more FTEs, go into effect in 2015. If health coverage is not offered to 70 percent or more of eligible FTEs, organizations face a penalty in the amount of $2,000 per employee per year.
- Penalty for Failure to Offer Affordable, Minimum Value Coverage: In addition to offering health coverage, employers must provide an option that is affordable and meets minimum value standards. If an individual seeks insurance through an exchange because of a lack of affordable options, and receives a subsidy, the organization can face penalties of up to $3,000 for each person that receives a subsidy.
2016
- Adjustments to Thresholds: In 2016 the thresholds for ACA compliance move to permanent levels. Penalties now apply for organizations with 50 or more employees. Additionally, coverage must be offered to 95 percent of eligible full-time equivalent employees.
2017
- Beginning in 2017, large employers will be able to purchase insurance through health exchanges. Prior to this point, only small employers and individuals are eligible for this insurance purchasing option.
2018
- Implementation of the Excise Tax: In the year 2018, if employer-sponsored health plans have a cost of $10,200 or more for individual plans, or $27,500 for family plans, they are subject to an excise tax. Every dollar above the threshold will have a 40 percent tax penalty that is to be paid by the employers. Many individuals believe that the thresholds are high enough that most plans will not be subject to the excise tax. However, according to ADP, research shows that as many as 60 percent of health plans will be subject to the excise tax due to a rise in costs.
ACA Compliance Impact
Unlike other legislation that affects one aspect of business operations, the ACA will impact multiple areas within an organization. Decisions will need to be made on achieving ACA compliance from a number of areas including:
- Payroll
- Benefits
- Human Resources
- Legal
- Information Technology
Implementing ACA guidelines within an organization means that all affected departments must work together. Having an oversight taskforce or project manager for ACA compliance will ensure the implementation process is coordinated across departments and throughout the organization.
Adjusting for ACA Rules
One of the most crucial steps of ACA compliance is documenting how employees are notified of their health insurance eligibility. After all, penalties are based on an employer offering health coverage, not the employee’s acceptance of that coverage. As such, it is important that employers take steps to document benefit offers to employees.
The initial step in this process is to automate the process of making an employee eligible for benefits in a way that tracks how this determination was made. Next, records must be kept of employee eligibility notifications. This can be achieved by:
- Delivering documents by certified mail or courier that requires a signature of receipt.
- Electronic delivery of documents whereby an employee acknowledges receipt. All electronic notification methods must adhere to U. S. Department of Labor standards.
- Physically handing out eligibility letters to employees. Employees would then need to sign a document indicating that they received their notification of eligibility.
In the event of an IRS audit, eligibility acknowledgement information must be accurate and readily available.
Another key role is determining which employees are qualified for full-time equivalents. For organizations with few part-time employees, this process may be simple. For others, particularly those that rely heavily upon part time workers, the process will be complex. In order to provide an accurate picture, it is important that all pertinent information regarding service hours be tracked. Additionally, in order to be in ACA compliance, this documentation must be stored for seven years.
Implementing the necessary changes to be in ACA compliance can be complicated. Therefore, it is suggested that organizations work with qualified consultants with experience implementing new rules and regulations and extensive knowledge of the ACA. Many years of experience providing consulting services to organizations uniquely qualifies Smolin for this task.
