The fourth quarter of every year is hectic for employers and TPAs. From processing new benefits to closing out the current year, there is no shortage of work. But with regulatory changes over the last two years, it’s important to ensure you’ve maintained compliance. Now’s a good time to review Affordable Care Act (ACA) compliance reporting due in the first quarter of 2023.
ACA Compliance: What and Why?
What is ACA Compliance?
Employers who qualified as an ALE (Applicable Large Employer) during the prior year must maintain compliance under the Affordable Care Act. These employers must offer affordable benefits that meet healthcare minimums for eligible employees.
In 2010, the Obama Administration and Congress passed the ACA in an effort to change the face of American healthcare. Among other provisions, the ACA mandated that affordable health insurance be made available to more people to improve care and reduce costs. To ensure that availability continues, ACA violators face differing penalties. The type of penalty depends on coverage availability or whether it is affordable and meets a minimum value.
2023 Compliance Reporting
The Society of Human Resource Management (SHRM) has published five helpful reminders for employers on compliance reporting, which are summarized below.
Lower Affordability Threshold
For 2022, employers used 9.61% as the affordability threshold when calculating an employee’s required share of the lowest tier self-only plan premium. For 2023, that threshold drops to 9.12%. As you finalize 2023 group plans, ensure that plans meet the new requirement and communicate the change accordingly.
Affordability Safe Harbors
Do your employer groups understand the safe harbor requirements? Employers must consider each employee’s household income to determine the affordability threshold. However, since they are unable to know that figure for sure, they can use one of three Safe Harbor calculations:
- W-2 Safe Harbor – Employers can use the employee’s reported wages from Box 1 of their IRS Form W-2.
- Rate of Pay Safe Harbor – Employers can use an employee’s rate of income at the beginning of the coverage period and adjust for hourly employees if they work fewer hours during that same period.
- Federal Poverty Line Safe Harbor – Employers can consider their coverage affordable if the employee’s monthly premium share is not more than 9.61% (annually adjusted percentage for 2022) of the federal poverty line for a single individual, divided by 12.
Employer Shared Responsibility Penalty (ESRP) Amounts Rising
Penalties for failing to provide required coverage, or providing coverage that does not meet affordability/minimum value as required, are adjusted annually for inflation. For 2023 reporting, those penalties are increasing as follows:
- ALE employers who fail to provide health insurance coverage to at least 95 percent of full-time employees and their dependents face a penalty of $2,880 ($240/month) per employee
- ALE employers who fail to provide coverage that meets affordability and minimum essential coverage (MEC) requirements face a penalty of $4,320 ($360/month) per employee
Form 1094-C/1095-C Deadlines
ALE employers must report certain group plan information annually so the IRS can determine if they are meeting the mandates. ALE employers must provide statements to employees no later than March 2, 2023. The employers must also file applicable reports for their situation no later than February 28, 2023 for paper filing or March 31, 2023 for electronic filing.
Current Draft ACA Reporting Forms
Self-funded plan sponsors who do not have more than 50 full or full-time equivalent employees will use Forms 1094-B and 1095-B. Those with more than 50 will use Forms 1094-C and 1095-C. Neither form contains material additions from the prior year, but they no longer reference the canceled individual mandate penalties.
Companies who qualify as ALEs for the first time may not fully grasp the difficulties they face if not compliant with requirements. In addition to their TPAs and brokers, new ALEs may want to consult with qualified benefits counsel.
A Note about ICHRAs and QSEHRAs
Employers struggling to afford group health coverage that meets affordability and MEC requirements should take another look at their ICHRA and QSEHRA options.
- Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) – QSEHRAs are an excellent option for employers with 50 or fewer full- or full-time equivalent employees. Each employer sets the amount it will reimburse employees for individual health coverage premiums, and the funds are not taxable to the employee. Additional information is available here.
- Individual Coverage Health Reimbursement Arrangement (ICHRA) – After passage of the ACA, HRAs could no longer cover premium payments to employees for individual healthcare coverage. First came QSEHRAs, but they were limited to smaller employers. In 2019, employers gained the option of offering ICHRAs. This account type is an option for employers of any size, provided the employer does not give employees a choice between a group plan and individual coverage. Employers can use ICHRAs to satisfy ACA requirements as long as the individual coverage purchased by employees meet the minimum requirements.