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The Patient Protection and Affordable Care Act (ACA) is a comprehensive healthcare reform law enacted under President Barack Obama in 2010. The implementation of the ACA represented the largest set of tax law changes in decades. The ACA comprises the most significant set of regulatory changes in U.S. healthcare since the enactment of Medicare and Medicaid in 1965, with far-reaching implications for both individuals and employers. Here are some of the most frequently asked ACA questions:
What information does the ACA require to be filed with the IRS?
The ACA requires Applicable Large Employers (ALEs) to report, using 1094-C/1095-C Forms, information about the health care coverage they offered to full-time employees. ALEs must likewise report whether they were out of compliance with the ACA during the reporting year.
Are reporting Forms 1094-C and 1095-C required to be filed with the IRS by non-ALE employers?
The 1094-C/1095-C Forms are not required for a non-ALE. However, for a non-ALE that offers a self-insured health plan, the non-ALE will report on the individuals enrolled on the self-insured health plan on the 1094-B/1095-B Forms.
Who files the 1095-C Forms and for what types of employees?
The Applicable Large Employers (ALEs) are required to file and furnish Forms 1095-C for each of their full-time employees.
In addition, if an employer has self-insured coverage, the employer must report on all individuals who were enrolled on the self-insured health plan, including individuals who were not full-time employees, and non-employee individuals (e.g. spouses/dependents). The employer has the option to complete information about non-employee individuals using either Part III of the 1095-C or by using Form 1095-B.
What is an Applicable Large Employer?
If an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is an Applicable Large Employer (ALE) for the current calendar year and is therefore subject to the Employer Shared Responsibility Provisions (also referred to as the ACA Employer Mandate). ALE’s have employer information reporting responsibilities, which require ALEs to report annually to the IRS, information about the health care coverage, if any, they offered to full-time employees. The IRS will use this information to administer ACA penalties for non-compliance.
A full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during the calendar month or at least 130 hours of service during the calendar month.
A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee. An employer determines its number of full-time-equivalent employees for a month by combining the number of hours of service of all non-full-time employees for the month, with a cap of no more than 120 hours of service per employee. That total is then divided by 120.
To determine its workforce size for a year, an employer adds its total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divides that total number by 12.
Are only full-time employees required to file Forms 1095-Cs?
The full-time employees do not in and of themselves file the Forms 1095-C (or 1095-B). Rather, it is the ALE that is required to file and furnish 1095-C’s for each of their full-time employees. In addition, if the employer has self-insured coverage, the employer must report on all individuals who were enrolled on the self-insured health plan, including individuals who were not full-time employees, and non-employee individuals (e.g. spouses/dependents). The employer has the option to complete information about non-employee individuals using either Part III of the 1095-C or by using Form 1095-B.
Can an employer correct a previous year’s filing if they know they aren’t correct?
Yes. If you are aware of errors, you should correct them promptly. Error correction within a reasonable period of time from discovery is part of showing your good faith effort to the IRS in complying with the ACA. This is important to be eligible for good faith effort transition relief from penalties.
How can an employer prove that they offered coverage to an employee who declined to enroll?
One relatively simple way to show that an offer of coverage was made to an employee who declined coverage would be through a copy of a signed Acknowledgement of Offer. The form should reflect the offer of coverage to the employee and a signature line for declining the offer.
What is a PTC?
PTC stands for Premium Tax Credits. PTC’s are what an individual may receive from a healthcare exchange if he or she meets certain requirements, including income, and if he or she was not offered coverage through their employer that met the Minimum Essential Coverage (MEC), Minimum Value (MV), and affordability requirements.
What if employees are full-time and become part-time wherein they only work 20 hours per pay period? Can they still be enrolled in coverage without risking a penalty to the employer?
If an Applicable Large Employer (ALE) has employees who had more than 30 hours per service per week, but then their hours decreased such that they were working less than 30 hours of service per week, whether the ALE needs to continue to offer coverage depends on which method the ALE was using to measure the hours. If the ALE was using the Look Back Measurement Method, and if those employees were full-time (at least 30 hours per week) during the measurement period, it doesn’t matter whether those employees had lesser hours during the stability period. Such employees will be required to be offered coverage to avoid penalties to the ALE. Of course, if an employee who is non-full-time during the measurement period is nevertheless enrolled in coverage during the stability period, there is no employer mandate penalty. An employer can always offer coverage even if not obligated to do so.
Is it best to outsource ACA compliance to vendors or outside experts?
Yes, because most companies do not have the human resources needed to devote to ACA reporting, let alone the technological and compliance expertise to properly conduct ACA reporting.
Failure to properly offer coverage and report on that coverage can result in significant financial exposure. This includes steep penalties in scenarios such as these:
- Failure to offer coverage to at least 95% of the full-time workforce and their dependents, which requires the accurate determination of who is “full-time” under the ACA definition. This can be very challenging for those companies who have related companies or have a variable/part-time workforce and/or high turnover, just to name a few complications.
- If you do offer coverage to at least 95% of the full-time workforce, but fail to provide coverage that meets affordability and Minimum Value requirements.
- Failure to report accurately and timely information on the 1094-C/1095-C Forms, the latter of which must be furnished to full-time employees and other applicable individuals (e.g., dependents for self-insured employers), as well as be filed with the IRS.
What data is needed to perform an ACA Penalty Risk Assessment?
To conduct an initial ACA Penalty Risk Assessment, we would need to look at the client’s 1094/1095 Forms and may need to set up a brief call to gather some basic information.
Is there a way to tell which states have additional ACA obligations?
Your regulatory compliance manager will need to determine that. States like California have their own “individual mandate” in place. Along with that “individual mandate,” California now requires employers to provide employer mandate-type reporting to the Franchise Tax Board (FTB), in addition to the reporting required by the IRS. To the extent that states have not yet imposed such additional obligations, the trend is towards moving in that direction.
