The ACA guide – key concepts for employers
What is ACA?
The affordable care act (ACA) actually refers to two pieces of United States Federal legislation — the Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education Reconciliation Act of 2010. Together, we refer to them as ACA and this statute increases the quality and affordability of health insurance and lower the uninsured rate by expanding public and private partnership. ACA requires applicable employers to provide affordable health coverage meeting IRS standards. In addition, IRS Section 5056 requires applicable employers to file information return to IRS with details on employee and benefit coverage offered.
Am I an applicable employer?
The first question that may come to your mind is whether the shared responsibility applies to your organization. The answer lies on qualifying yourself as an ‘applicable large employer.’ An applicable large employer (ALE) is one that employs an average of at least 50 full-time employees on business days during the preceding calendar year. For the 2015 plan year, the IRS reporting needs to be filed at the beginning of 2016. But, lets look at this in detail:
Employers with more than 50 full-time employees:
The employer is subject to ACA. However, if your company has 50-99 full-time employees, then you may qualify for transition relief, and you won’t be subjected to compliance penalties. Please read the following IRS guidelines for more information on transition relief: http://www.irs.gov/Affordable-Care-Act/Employers/Transition-Relief
Employers with less than 50 full-time employee:
The employer is NOT subjected to the ACA provisions in 2014 and classified as a small group employer.
Note: A full-time employee includes any employee who was employed on average at least 30 hours of service per week (or 130 hours per month) and any full-time equivalents (for example, 40 full-time employees employed 30 or more hours per week on average plus 20 employees employed 15 hours per week on average are equivalent to 50 full-time employees). Refer to healthcare.gov calculator.
What does it take to be compliant with ACA?
Alright, now that you know what employer segment you belong in, let’s look at what you need to do for ACA compliance (Source: IRS)
- Offer health benefit coverage to at least 70% of your full-time employee population (95% for 2016) that meets Minimum Essential Coverage (MEC) and Minimum Value (MV). This means that your company’s medical plan or plans is both affordable as well as meets a set of standards for the kinds of services and costs that are included. For example, under ACA, all medical plans must covered preventative care, like annual physical exams, at no cost to the employee.
- MEC is qualifying health-care coverage defined by your provider. Please click here for more details:
- MV benefit plan covers at least 60% of total allowed cost of benefits that are expected to be incurred under the plan. Please click here for more details.
- Report this information to the IRS every calendar year via Form 1094-C and 1095-C. This requirement begins in 2016, for information applicable to calendar year 2015.
- If you are a self-insured organization, you also need to file Form 1094-B and Form 1095-B.
Since employers may not know the employee’s household income, they can use three affordability safe harbors. The three affordability safe harbors as per IRS Guidelines (1) the Form W-2 wages safe harbor, (2) the rate of pay safe harbor, and (3) the federal poverty line safe harbor. Most ALEs will offer to subsidize the medical premiums of their employees at a level that ensures they meet affordability standards, but others may select another option that’s more applicable to their organization.
What are the Year-end Forms that I need to fill?
IRS released four forms for year-end reporting for employers. Your company will need to file at least two of these by the end of Q1, 2016.
Form 1094-C: Form 1094-C is a transmittal form for 1095-C used to report summary information for each employer to IRS. It includes information with full-time employees count by month, headcount by month, MEC offered?, Transition Relief? Applicable 4980H Safe Harbor? etc…
Form 1095-C: Form 1095-C is used to report information about each employee and the offered coverage. This is generated by employer and sent to the employee by Jan 31 of each year. It includes information with proof of offer of benefit coverage, Employee share of Lowest Cost Monthly Premium for self-only MV, applicable 4980H Safe Harbor.
Form 1094-B: Transmittal form for 1094-B’s. Includes information such as total number of 1094-B
Form 1095-B: List of employees covered for each month.
When should I file these forms?
For plan year of 2015, the IRS reporting needs to be filed in 2016. The IRS must receive the forms by Feb 28th 2016 if filing by paper or Mar 28th 2016 if filed electronically. Refer to: http://www.irs.gov/instructions/i109495c/ar01.html
What are the penalties if you don’t comply with ACA?
- As per IRS guidelines, If an ALE does not offer coverage or offers coverage to fewer than 95% of its full-time employees (and their dependents), it owes an Employer Shared Responsibility payment equal to the number of FTE for the year (minus up to 30) multiplied by $2,000, as long as at least one full-time employee receives the premium tax credit. If this is violated for a particular month of the calendar year, this will be prorated.
- As per IRS guidelines, If an ALE offers coverage to fewer than 95% of its full-time employees (and their dependents), but has one or more full-time employees who receive a premium tax credit, it owes an Employer Shared Responsibility payment for the month of number of FTE who receive a premium tax credit multiplied by 1/12 of $3,000.
- Additionally, there is a $100 fine each time 1095-C and 1094-C return is filed incorrectly or delinquent or correct payee statement not issued to employee.
Note: The information above is provided for informational use only and not for the purpose of legal guidance. It may be subject to change as per IRS policy update.
Great, now that you understand the ACA and the complexities behind it, let’s see how FinancialForce HCM helps ACA compliance.
How does FinancialForce HCM help you ACA compliance?
We believe that compliance is a core part of our product and assists in ACA reporting without any additional price. HCM assists your organization in meeting ACA compliance by:
- Identifying the number of full-time equivalent workers in your organization with a unique dashboard that is unlike any in the industry. Always know where you stand on ACA, as your organization grows or changes.
- Viewing an individual worker’s ACA status and record who has been offered health coverage
- Tracking the benefit plan options provided by your organization that meet minimum essential coverage, minimum value ACA specification and affordability criteria
- Providing self service enrollment for employee and My Benefits dashboard
- All the data reportable to allow you to easily complete IRS forms
Below are a few screenshots of ACA in action in the FinancialForce Human Capital Management solution. For more information, fill out this contact form to connect with one of our sales representatives.
ACA Summary ACA IRS Reports: As every field in FF HCM is reportable, quick reports can be created to get the data for your IRS forms. CLICK TO ENLARGE. Moreover, you can collect a lot of insights most valuable to your organization.