Complying With the Affordable Care Act: What You Need To Know

Avoid penalties by following these simple rules

Compliance with the Affordable Care Act (ACA) means more than just offering health insurance. It means navigating a myriad of compliance requirements and reporting obligations. And that can be an overwhelming task.

Despite the difficulties, however, complying with the ACA is crucial for any employer. If you don’t follow the rules, you could face some serious penalties. So it pays (literally) to know the law and your responsibilities when it comes to employee health care coverage.

The basics

Originally passed in 2010, the ACA was created to make health insurance available to more people. It requires employers with at least 50 full-time (or full-time equivalent) employees to provide health care coverage to certain employees and their dependents. Companies meeting this threshold are called applicable large employers or ALEs.

Certain affiliated employers with common ownership or employers that are part of a controlled group are considered part of an aggregated group. In this case, you must aggregate (or combine) your employees to determine your workforce size.

If you’re considered an ALE, coverage must be offered to at least 95% of full-time employees. The plans must also meet the following specifications:

• • The plans must provide minimum value by covering at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.

• The plans must meet the ACA’s minimum essential coverage (MEC) standards. This means they have to include certain types of care, such as preventative and wellness-related tests and treatments.

The contribution for an employee-only plan cannot exceed a specific percentage of the employee’s household income. This percentage changes every year (for 2023, it’s set at 9.12%).

ALEs must also provide employees with the following:

• A notice of coverage and available benefits
• An outline of offered plans and their corresponding costs to the employee

Requirements for ACA compliance

One of the biggest headaches of complying with the ACA is determining how many employees are considered full time. The ACA defines full-time employees as anyone who averages 30 hours or more of work per week (or 130 or more hours per month).

While that sounds straightforward enough, there are complications. Employers must continually track whether their employees fit these criteria. If someone takes a leave of absence, leaves the company and comes back, goes on short-term disability or otherwise interrupts their employment, this can impact their full-time status.

There are also reporting requirements to maintain ACA compliance. Regardless of size, all employers providing self-insured health coverage must file an annual return reporting certain information for each covered employee. This return is done using 2 forms:

• • Form 1095 must be sent to every employee eligible for coverage. You must also send the IRS a copy of each 1095 you distribute.

• Form 1094 is completed by the employer and sent to the IRS along with its 1095s. It includes the employer’s address, phone number and EIN; number of employees; contact name; and number of 1095 forms being submitted. (Essentially, it serves as a cover sheet for your submission.)

Common Mistakes in Completing Forms 1094-C and 1095-C

These simple mistakes could lead to severe penalties for your business.

Each of these forms has its own variation—B and C—depending on the size of the employer and nature of the plan:

• • Form 1094-B and Form 1095-B (and related instructions) are used by providers of minimum essential coverage, including self-insured plan sponsors that are not ALEs, to report under Section 6055.

• Form 1094-C and Form 1095-C (and related instructions) are used by applicable large employers (ALEs) to report under Section 6056, as well as for combined Section 6055 and 6056 reporting by ALEs who sponsor self-insured plans.

Finally, don’t forget that your state might have its own laws and reporting requirements regarding employee-offered health insurance. So you could have work in this vein as well when complying with the ACA.

The consequences of noncompliance

ALEs that don’t comply are subject to penalties. These fines can be levied for:

• Failing to offer coverage
• Not submitting required forms
• Submitting forms that are incomplete or incorrect

The price is steep, with penalties that can reach several thousand dollars per full-time employee. So if you’re an ALE, it’s important to be up to speed on the latest forms and requirements.

That said, penalties shouldn’t be your only deterrent to not providing coverage. Health insurance is a good benefit for your employees. And these days, holding on to quality team members is more important than ever.

So even if complying with the ACA isn’t top of mind (which it really should be), employee retention is a compelling reason to offer insurance.

Commonly asked questions

We hear the same questions time and again. And while the answers can vary based on who’s asking, there are some basics you can keep in mind.

I don’t have that many full-time people, so how could I be an ALE?

You can easily be an ALE when you add your part-time employees to your full-time headcount. Per the ACA, you are considered an ALE if you have 50 or more full-time and full-time equivalent (FTE) employees (added together). An FTE isn’t actually a person but rather a unit to measure the hours people work.

In order to determine your FTE number:

1. 1. Take your total number of part-time employees and combine their total hours for a particular month.

1. 1. Divide that total by 120; the result is your full-time equivalent count for the month.

1. Add this number to your full-time employee count to determine your ALE status.

If you average 50 or more per month in a calendar year, you are considered an ALE for the following calendar year.

How do you determine what affordability is?

As we mentioned earlier, the cost for a plan can’t exceed an ACA-specified percentage of an employee’s household income.

That said, you probably don’t know that figure for your workers (since it can involve income from other people). So you can use safe harbor calculations that include W-2 wages, rate of pay and the federal poverty level.

Determining affordability is critically important and must be looked at every year. If you’re not clear on the rules and options, it’s best to check with consultants specializing in ACA compliance.

What do I do if I get a penalty letter?

Don’t panic. Sometimes well-intentioned employers make a simple mistake. These issues can often be fixed easily and penalties reduced (or even forgiven altogether). In the case of a broader oversight, however, the resolution can be far more complicated.

Either way, take a deep breath and contact an ACA compliance services provider.

At James Moore, we pull professionals from multiple teams to find all possible causes and discrepancies. They’ll also show you how to avoid these letters—and costly penalties—in the future.

Get help from a tax professional

Complying with the ACA is a mind-boggling process for many employers. But that doesn’t have to be the case. With the right consultant by your side, you’ll have a much easier time navigating the requirements and caring for your employees.

At James Moore, our tax advisors pride themselves on providing comprehensive accounting, tax and consulting services for multinational companies, individuals and businesses.

Contact us to help you with your tax needs today, and watch your business grow.