Each year when the 4th quarter rolls around, employer workloads grow tremendously, from processing new benefits to closing out the current year. With regulatory changes over the last two years, it’s vital to ensure that you maintain compliance. So let’s review the Affordable Care Act, or ACA, compliance reporting due in the first quarter of 2023.
Affordable Care Act
In 2010, the Obama Administration and Congress passed the ACA to help reform the American healthcare system. Among other mandates, the ACA requires making affordable health insurance available to more people.
During the prior year, employers who qualified as an ALE (Applicable Large Employer) must maintain compliance under the Affordable Care Act. These employers must offer affordable benefits that meet healthcare minimums for eligible employees.
To ensure that availability continues, ACA violators are subject to differing penalties. The type of penalty depends on coverage availability and whether it is affordable and meets a minimum value when offered.
Compliance Reporting Considerations
The Society of Human Resource Management (SHRM) has published five helpful reminders for employers on compliance reporting, which are summarized below.
Lower Affordability Threshold
In 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 will drop to 9.12%. As you finalize 2023 plans, work with your broker to ensure they meet requirements.
Affordability Safe Harbors
Employers must consider every employee’s household income to identify their plan’s affordability threshold. Since they don’t necessarily have access to that information, you can use one of three Safe Harbor calculations:
- W-2 Safe Harbor – You can use the employee’s reported wages from Box 1 of their IRS Form W-2.
- Rate of Pay Safe Harbor – You 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 period.
- Federal Poverty Line Safe Harbor – You can consider the coverage affordable if an 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.
Increased Employer Shared Responsibility Penalties (ESRP)
Penalties for failing to provide the required coverage or coverage that does not meet the required affordability/minimum value 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
Deadlines for Forms 1094-C/1095-C
ALE employers must report certain group plan information annually so the IRS can determine if they are meeting the mandates. They must provide statements to employees no later than March 2, 2023. The employers must also file corresponding reports for their situation no later than February 28, 2023, for paper filing; for electronic filing, the deadline is March 31, 2023.
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. The main difference is that they no longer reference the individual mandate penalties since these have been canceled.
Companies qualifying as ALEs for the first time may not fully understand the consequences they face if they do not maintain compliance. New ALEs may want to consult not just with qualified benefits counsel.
ICHRAs and QSEHRAs for ACA Compliance
Employers struggling to afford group health coverage that meets affordability and MEC requirements should consider ICHRA and QSEHRA options.
- Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) – A QSEHRA is 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. These funds are not taxable to the employee. Additional information is available here.
- Individual Coverage Health Reimbursement Arrangement (ICHRA) – After the 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 option is available to employers of any size, provided your employees are not provided a choice between a group health plan and an ICHRA. Employers can use ICHRAs to satisfy ACA requirements provided the employees’ individual coverage meets minimum essential coverage (MEC) requirements.
Review your compliance situation and prepare for upcoming reporting requirements. Contact DataPath Administrative Services, your broker, or qualified benefits counsel with questions.
And it’s important to prepare for 2023 ACA compliance reporting.
DataPath Administrative Services is the oldest Arkansas-owned, full-service administrator for employee benefit and compliance accounts.