As part of the Inflation Reduction Act in 2022, the Affordable Care Act’s ongoing “family glitch” issue was resolved.
This was accomplished through new IRS regulations, along with the extension of Premium Tax Credits (PTCs). These regulations extended PTC eligibility to include family members. This means that now employees’ entire families can qualify for PTC coverage if the family coverage costs more than the set Affordability Safe Harbor % each year for household income under the lowest-cost employer-sponsored option. For 2024, the percentage is set at 8.39%.
This is a decrease from 2023 (9.12%) and continues a downward trend in affordability for PTC coverage. Thus, what does this mean for employers when it comes to ACA compliance?
Consequences for Employers
The resolution of the “family glitch” brings significant implications for employers. Employees now have the option to opt out of their employer’s coverage and instead join their family members in the ACA marketplace. This could result in cost savings for employees and simplify the process of obtaining coverage for the entire family.
The Inflation Reduction Act further extends ACA subsidies through 2025, making PTCs available to Americans for no more than 8.5% of their household income. With PTC eligibility more widely accessible, it is expected that ACA participation will increase, leading to higher enrollment in ACA marketplaces.
This appears to be coming to fruition. In fact, the most recent enrollment saw more than 21 million sign-ups through both state and federal marketplaces, a notable increase from the 16 million enrolled the previous year.
Increased ACA Compliance Enforcement
While expanded PTC eligibility benefits employees and their families, it also raises compliance risks for employers. PTCs serve as triggers for the IRS to identify potential ACA non-compliance. When an employee receives a PTC from a state or federal health exchange, the IRS cross-references the request with the employer’s ACA filings to identify organizations that may not be compliant with the ACA’s Employer Mandate.
As ACA participation and PTC utilization increase, ACA compliance enforcement is likely to intensify for employers. The Inflation Reduction Act allocated additional funds for IRS tax enforcement, including the ACA, signaling a higher focus on enforcement. Employers must be proactive in addressing affordability issues for employees and their dependents to minimize the risk of receiving penalties via Letter 226J.
Ensuring Accurate Reporting and Compliance
Given the potential risks and penalties associated with non-compliance, it is crucial for employers to prioritize accurate ACA reporting and compliance. Employers should ensure that their recordkeeping is accurate and up-to-date, and that they meet the requirements set forth by the IRS in terms of affordability and minimum value of health insurance offerings.
It’s not hard to understand that employers are likely to have a lot of questions about these changes and the impact on their operations, their employees, and their compliance risks. As open enrollment season approaches, it’s important for employers to ensure they fully understand these implications.
Leverage Software and Expert Guidance
To navigate the complexities of ACA reporting and compliance, employers can turn to Trusaic for assistance. Our full-service ACA Complete software solution provides everything employers need to become 100% ACA compliant.
From 1095-C form preparation to monthly tracking, safe harbor calculations, year-end ACA filings, and IRS audit defense, Trusaic has helped thousands of clients prevent over $1 billion in ACA penalties.
The resolution of the “family glitch” and the extension of PTCs under the Inflation Reduction Act bring about positive changes for employees and their families seeking healthcare coverage. However, for employers, it means an increased focus on accurate reporting and compliance with the ACA’s Employer Mandate.
By proactively addressing affordability issues and leveraging compliance solutions like Trusaic’s ACA Complete, employers can navigate the reporting season successfully and ensure the well-being of their workforce while avoiding potential penalties.
As open enrollment begins, accurate ACA reporting and compliance remain paramount for employers to stay compliant and avoid enforcement actions. We can help.
