Affordable Care Act Challenges
The Patient Protection and Affordable Care Act (ACA), has officially been in effect since
January 1, 2014. As you are by now familiar, the federal government decided to roll out some aspects of the plan over multiple years in order to make the implementation more manageable for employers. As such, there are some major changes to the ACA for 2016 that employers should be aware of.
First, the minimum penalty for a non-compliant individual who does not sign up for a health care plan is increasing again in 2016. To provide some background, uninsured taxpayers who did not have health insurance or qualify for an exemption in 2014 were required to pay either one percent of their modified adjusted gross income or $95, whichever was greater. In 2015, the penalty rose to either two percent of their modified adjusted gross income or $325, whichever was greater. In 2016, the penalty will be either two and a half percent of their modified adjusted gross income or $695, whichever is greater. The maximum penalty for an uninsured family is $2,085. Starting in 2017, the penalties are scheduled to increase along with the rate of inflation.
Second, as of 2016, the ACA’s employer mandate, which requires certain employers to offer affordable health insurance to their employees, is in full effect. In 2015, businesses with 100 or more full time equivalent employees were required to offer at least 70 percent of those employees health insurance coverage. As of 2016, employers with 100 or more full time equivalent employees must offer coverage to 95 of their eligible employees or else they will face financial penalty. Companies with 50 to 99 full time equivalent employees must also offer health insurance to 95 percent of those employees. Small businesses with less than 50 full time equivalent employees continue to be exempt from penalties if they do not offer health insurance.
Third, insurance premiums will rise. This is already known because the ACA requires any insurance company who wants to make a double-digit increase in their rates to explain the increase to the Office of the Insurance Commissioner in their state. That office then makes a determination as to if the increase is justifiable. According to the Washington Examiner, while there were only 121 requests for double-digit rate hikes for the 2015 calendar year, there were 231 requests for 2016. Of those 231 requests, 126 plans asked for a 20 percent increase, 61 asked for a 30 percent increase, 26 plans asked for a 40 percent increase, and 12 plans asked for an increase of 50 percent or more!
As a Human Resources professional, you are bound to face some challenges with your required reporting in 2016. For example, this is the first time you will be required by law to file reporting paperwork with the Internal Revenue Service (IRS), as well as inform your employees about their health care coverage options. Reporting on the 2015 tax year is due by January 31, 2016. For the IRS, you must complete a Form 1095-C, “Employer-Provided Health Insurance Offer and Coverage,” for each employee. When completing this form, there are several issues you may encounter.
First, there is no single data system with all of the information you need in order to complete Form 1095-C, so you will need to collect data from several different platforms. You will uses your payroll system to obtain your Employer Identification Number, as well as your employee pay information. You will need your Human Resources Information System to obtain the requested data on employee leave. Finally, you will need your benefits administration system to gather information on benefits offered, employer and employee benefits costs, health savings accounts, and flexible spending accounts.
Second, in coordinating all of this data, you are bound to encounter some roadblocks. For example, if you have software in place that was created before the demands of the ACA, you may find your employee history data does not contain the details that the ACA requires. Also, if you did not plan ahead and begin tracking employee leave prior to 2015, you will have to go through all of your employee records and calculate it manually. Another issue is correcting inconsistencies in employee data (name, date of birth, demographic information, etc.) throughout your various platforms. For reporting purposes, an employee cannot be listed as “John Smith” in one system and “Jonathan Smith” in another, as it may appear that there are two different employees instead of one. This is very important as the employer mandate is based on your number of full time equivalent employees. Additionally, for the ACA, each employee must be listed as full-time, which is defined as working 30 hours per week or more, or part-time, which is defined as working less than 30 hours per week. If your current Human Resources Information System does not track this, you will need to calculate it by hand.
Third, once you have the data, it will take some time to complete Form 1095-C for each of your company’s employees. Part II of the form can be particularly confusing to fill out. You must complete Line 14, Offer of Coverage, to demonstrate that you offered full time employees and their dependents the opportunity to enroll in health insurance plan. On Line 15, Employee Share of Premium, you will list the lowest-cost monthly premium your company offered for employee-only coverage. Line 16, Applicable Safe Harbor, is optional. If your company is seeking a penalty exception, this line can help demonstrate if it qualifies.
For any challenges you may face with reporting your 2015 tax year data, remember that 2016 is a new year, and you can make changes now that will help you with reporting when January 2017 rolls around.
First, you can choose to do all of your reporting in-house. To do this effectively, you need the proper staffing to handle all of the tasks that come with it, such as collecting data, coordinating data, tracking employee hours work and leave time used, preparing the 1095-C forms, and making sure employees receive copies of the 1095-C filed for them with the IRS.
Second, you can choose to outsource to Human Resources vendors to collect all of the required information for your employees. However, at this time, you should be aware that you may not find one vendor with strengths in collecting all of the data required by the ACA. Therefore, you may need to hire more than one vendor to do this, as well as designate an employee to be the liaison between your company and the vendors.
Third, you can locate an ACA compliance expert to handle the reporting. This company should have the expertise in health care plans and technology necessary to get the job done for your company and prevent your business from incurring unnecessary penalties.
In summary, we are now reaching the end of the rollout of ACA requirements. While the last several years may have seemed challenging with all of the new rules and reporting to implement, you will find that over time, your Human Resources team will grow comfortable with these requirements and establish systems which will increase the ease and efficiency of your company’s data reporting.