ACA Update: New Definitions and Increased Penalties

Many companies have decided to take one strategy in particular when it comes to tackling compliance with the Affordable Care Act (ACA): the ostrich strategy, or simply pretending the whole thing doesn’t exist. Thing is, that only works for so long. As 2015 comes to a close—the first year seeing the ACA’s employer mandate in action—it’s important for smaller sized companies in particular to get a firm handle on how the legislation defines “small” group employers. And it’s always smart to stay up to date on noncompliance penalties. Let’s get right to it.

What’s Size Got to Do With It

As of January 1, 2016, the ACA definition of a small group employer, for the purposes of insurance market size, will increase from 50 and fewer employees to 100 and fewer employees. What does that mean if your company is covered as a large group this year but will be looked at as a small group next year?

Well, from an insurance rating perspective, your employer group will now be rated in a limited capacity along with other small group employers. Rates will be based only on age, family size, geography, and self-reported tobacco use. The “old” way of determining rates—by using past utilization, claims history, prescription use, industry, etc.—will no longer be used for employer groups falling into the small employer category. What does this mean from a rating standpoint? It could benefit some employers and hurt others, depending on your group’s demographics and health conditions within your group.

However, employer groups that have between 50-99 employees will now need to comply with the ACA shared responsibility mandate. That means offering minimum essential coverage that is determined to be affordable to their full-time employees and dependents, or the employer group must pay certain penalties.

If an employer has fewer than 50 full-time employees, including full-time equivalent employees on average during the prior year, the employer is not an applicable large employer (ALE) subject to the ACA's coverage mandate or the employer information reporting provisions.

The Trade Preferences Extension Act

And just to keep things interesting regarding penalties around noncompliance: The Trade Preferences Extension Act, which became law on June 29, 2015, included a provision that has flown under the radar for many professionals. The law has doubled per employee penalties on ALEs for failing to file ACA information returns with the IRS starting in 2016, or failing to provide employees with payee statements—as required by the ACA—regarding their health care coverage. The amendments to the IRS Code include:

• The basic penalty for failing to file or furnish a correct information return or payee statement will more than double from $100 to $250.
• The standard annual penalty cap will double from $1.5 million to $3 million.
• If the failure relates to both an information return and payee statement, the penalties are doubled to $500 per statement with a $6 million cap.

As a compliance refresher, don’t forget the following:

• For ALEs, the Forms 1095-C must be provided to each full-time employee no later than February 1, 2016.
• ALEs must file Form 1094-C and Form 1095-C for each employee with the IRS for the 2015 calendar year no later than May 31, 2016.
• The required IRS forms must contain dates tracked month-to month in 2015, detailing the employee’s hours worked as well as his or her access to employer provided health care and employee contributions to employer provided health care.

Let’s face it: Compliance and understanding around the ACA is complex on a good day, and it's a continually moving target. Your best defense is a good offense—rather than keep your head in the sand, it makes perfect sense to engage the assistance of a good consultant and business partners who can help you navigate this complex law.