Affordable Care Act (ACA) Compliance

Affordable Care Act (ACA)
Compliance Services

What Is the Affordable Care Act (ACA)?

The Affordable Care Act (ACA) is a healthcare reform law enacted in March 2010 and went into effect in January, 2014. As part of its requirements for employers, the ACA expanded health insurance coverage and reformed the healthcare delivery system to curb healthcare costs while improving quality. 

The ACA incorporated many reforms and mandates.

For employers, the most important mandates are the Employer Shared Responsibility Provisions. ACA provisions require Applicable Large Employers (ALEs) of fifty (50) or more full-time equivalent employees to share responsibility for providing health insurance. 

Which Organizations Must Comply With ACA Mandates?

The ACA’s Employer Shared Responsibility Provisions apply to all organizations that employ 50 people or more. The law categorizes these employers as “applicable large employers,” or ALEs. Under these provisions, employers must meet three requirements.

All ALEs must:

  • Offer minimum essential health insurance coverage to full-time employees
  • Coverage must be affordable
  • Coverage must encompass employee dependents
  • Coverage must provide minimum value
  • Report information regarding essential coverage to employees
  • Report information regarding insured employees to IRS (for duration of coverage)

What is ACA compliance?

Businesses subject to the ACA must offer affordable health insurance that provides minimum essential coverage and minimum value to at least 95% of their full-time employees (including dependents). They’re also required to provide employees with the following information:

In addition, Forms 1094-C/1095-C must be filed with the IRS and all applicable state agencies each tax year, confirming that timely, affordable and ACA-compliant coverage was offered to eligible full-time employees every month. Data and business practices should be aligned so that these forms present accurate and complete information. Otherwise, the IRS and state agencies may issue penalty notices.

Ongoing Changes

The Affordable Care Act (ACA) has made a number of significant reforms to group health plan coverage since it was enacted in 2010.

Nearly every year, changes are made to the ACA requirements to which employers must be aware and comply. These changes include annual cost-of-living increases to certain ACA dollar limits, extensions to ACA reporting deadlines and updates to preventive care coverage guidelines.

Eligible worksite employers engaged with AdvanStaff HR benefit management and brokerage services receive ACA compliance services. Please contact the AdvanStaff HR Benefits Department for assistance or if you have questions about ACA compliance services.

Questions to ask about ACA Compliance

The ACA’s employer shared responsibility rules apply only to ALEs. ALEs are employers with 50 or more full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. Employers determine each year, based on their current number of employees, whether they will be considered an ALE for the following year.

Under the ACA’s employer shared responsibility rules, ALEs are required to offer affordable, minimum value health coverage to their full-time employees (and dependent children) or pay a penalty. An ALE will be subject to penalties if one or more full-time employees receive a subsidy for purchasing health coverage through an Exchange. An individual may be eligible for an Exchange subsidy either because the ALE does not offer coverage to that individual, or offers coverage that is “unaffordable” or does not provide “minimum value.”

If you answered “No,” you can stop here because your company is not an ALE for 2023, the ACA’s employer shared responsibility rules do not apply.

To correctly offer coverage to full-time employees, ALEs must determine which employees are full-time employees under the ACA’s definition. A full-time employee is an employee who was employed, on average, at least 30 hours of service per week (or 130 hours of service in a calendar month).

The IRS provides two methods for determining full-time employee status for purposes of offering coverage—the monthly measurement method and the look-back measurement method.

If you answered “No,” your company will be subject to penalties if one or more of your full-time employees receives a subsidy to purchase health coverage through an Exchange.

Health plan coverage is considered affordable if the employee’s required contribution to the plan does not exceed 9.5% of the employee’s household income for the taxable year (as adjusted each year). The affordability test applies only to the portion of the annual premiums for self-only coverage, and does not include any additional cost for family coverage. Also, if an employer offers multiple health coverage options, the affordability test applies to the lowest-cost option that provides minimum value.

The adjusted percentage is 9.12% for 2023. This is the most substantial decrease in this percentage since these rules were implemented (down from 9.61% in 2022). It is the lowest that this percentage has ever been set, at 0.38% below the statutory affordability percentage of 9.5%. As a result, many employers may have to substantially lower the amount they require employees to contribute for 2023 to meet the adjusted percentage.

If you answered “No,” your company will be subject to penalties if one or more of your full-time employees receives a subsidy to purchase health coverage through an Exchange.

A health plan provides minimum value (MV) if the plan’s share of total allowed costs of benefits provided under the plan is at least 60% of those costs. Three approaches may be used for determining MV: a Minimum Value (MV) Calculator, design-based safe harbor checklists or actuarial certification. In addition, any plan in the small group market that meets any of the “metal levels” of coverage (that is, bronze, silver, gold or platinum) provides MV.

In addition, plans that do not provide inpatient hospitalization or physician services (referred to as non-hospital/non-physician services plans) do not provide MV.

If you answered “No,” your company will be subject to penalties if one or more of your full-time employees receives a subsidy to purchase health coverage through an Exchange.

Depending on the circumstances, one of two penalties may apply under the ACA’s employer shared responsibility rules: the 4980H(a) penalty or the 4980H(b) penalty.

  • Under Section 4980H(a), an ALE will be subject to a penalty if it does not offer coverage to “substantially all” full-time employees (and dependents) and any one of its full-time employees receives an Exchange subsidy. For 2023, the 4980H(a) monthly penalty is equal to the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,880 for any applicable month.
  • Under Section 4980H(b), an ALE that offers coverage to substantially all full-time employees (and dependents) may still be subject to penalties if at least one full-time employee obtains an Exchange subsidy because the employer’s coverage is unaffordable or does not provide minimum value or the ALE did not offer coverage to all full-time employees. For 2023, the 4980H(b) monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $4,320 for any applicable month. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.

The following employers are subject to ACA reporting under Internal Revenue Code (Code) Sections 6055 and 6056:

  • Employers with self-insured health plans (Section 6055 reporting)
  • ALEs with either fully insured or self-insured health plans (Section 6056 reporting)

Employers that are not ALEs and have fully insured health plans are not subject to these ACA reporting requirements. Employers that are subject to this reporting must file certain forms with the IRS each year and provide annual statements to individuals who are covered under the health plan (under Section 6055) and each of the ALE’s full-time employees (Section 6056). Note that ALEs with self-funded plans are required to comply with both reporting obligations. However, to simplify the reporting process, the IRS allows ALEs with self-insured plans to use a single combined form to report the information required under both Sections 6055 and 6056.

If you answered “No,” you can stop completing this section of the checklist, as your company is not subject to ACA reporting under Sections 6055 or 6056.

Under Code Section 6055, reporting entities will generally file Forms 1094-B (a transmittal) and 1095-B (an information return). Under Code Section 6056, entities file Forms 1094-C (a transmittal) and 1095-C (an information return). Employers reporting under both Sections 6055 and 6056 (that is, ALEs with self-insured plans) use a combined reporting method by filing Forms 1094-C and 1095-C.

Any reporting entity that is required to file at least 250 returns must file electronically.

Reporting entities may receive an automatic 30-day extension to file with the IRS by completing and filing Form 8809 (Application for Extension of Time To File Information Returns) by the due date of the returns.

Provide Individual Statements by Applicable Deadline in 2023

Written statements generally must be provided to individuals no later than Jan. 31 of the year following the calendar year in which coverage was provided. However, the annual deadline for furnishing statements was extended by 30 days each year. As a result, for the 2022 calendar year, the deadline to furnish individual statements is March 2, 2023.

Under the ACA, employers with self-insured plans must pay Patient-Centered Outcomes Research Institute fees (PCORI fees) each year. The fees are reported and paid using IRS Form 720 (Quarterly Federal Excise Tax Return). For fully insured plans, the health insurance issuer is responsible for reporting and paying these fees.

PCORI fees are due each year by July 31 of the year following the last day of the plan year. For plan years ending in 2022, the PCORI fee payment is due July 31, 2023. For plan years ending on or after Oct. 1, 2021, and before Oct. 1, 2022, the PCORI fee amount is $2.79 per covered life. The IRS has not released the PCORI fee fo

Health plans and issuers must provide an SBC to applicants and enrollees to help them understand their coverage and make coverage decisions. The SBC should be included with the plan’s enrollment materials. If coverage automatically renews for current participants, the SBC must generally be provided no later than 30 days before the beginning of the new plan year.

The SBC must follow strict formatting requirements. Federal agencies have provided templates and related materials, including instructions and a uniform glossary of coverage terms, for health plans and health insurance issuers to use. It should be updated before the plan’s open enrollment period to reflect any changes in coverage for the upcoming plan year.

For self-funded plans, the plan administrator is responsible for providing the SBC. For insured plans, both the plan and the issuer are obligated to provide the SBC; however, this obligation is satisfied for both parties if either one provides the SBC. Typically, the issuer will prepare the SBC for an insured health plan, although the employer may need to provide it to employees.

The DOL has provided model Exchange notices for employers to use, which require some customization.

Under the ACA, group health plans and issuers that require the designation of a participating primary care provider must permit each participant, beneficiary and enrollee to designate any available participating primary care provider (including a pediatrician for children). Additionally, plans and issuers that provide obstetrical/gynecological care and require the designation of a participating primary care provider may not require preauthorization or referral for obstetrical/gynecological care.

If a health plan requires participants to designate a participating primary care provider, the plan or issuer must provide a notice of these patient protections whenever the summary plan description (SPD) or similar description of benefits is provided to a participant. If a plan is subject to this notice requirement, it should be confirmed that it is included in the plan’s open enrollment materials. Model language is available from the DOL.

If you have a grandfathered plan, make sure to include information about the plan’s grandfathered status in plan materials describing the coverage under the plan, such as SPDs and open enrollment materials.