ACA Readiness, Presented by Sean Bradley
Although the Affordable Care Act was designed to make sure that all American citizens have access to health insurance, it’s really a tax law. According to Sean Bradley of Bradley Strategies, the burden of proof that a taxpayer is doing the right thing lies with the taxpayer himself. There’s no one-size-fits-all answer when responding to the ACA, because its impact really depends on the people you’re placing. But if you know to capture all the necessary information, you’ll be well-prepared to prove your compliance when the time comes.
The ACA employer manadate became effective for many on January 1st. So ultimately, 2015 is the first year under the ACA. 2016 may look different. It’s possible that the IRS may make changes to the ACA in the near future for a number of reasons. By the end of July, the Supreme Court will rule on certain reporting rules that will affect the provision of subsidies, and, of course, the presidential election is coming up in 2016.
Do you have the necessary processes and procedures in place to ensure continued compliance with the ACA? These include:
- Supporting your information reporting to the IRS
- Demonstrating ongoing compliance
- Administering benefits properly and efficiently – this includes proper enrolling, onboarding, and offboarding procedures
Bradley noted that health insurance can be a very personal and emotional benefit for certain employees. It’s possible that you could lose an employee if it’s not handled carefully and correctly.
While general preparation is certainly a must for your company’s reaction to the ACA, you also have to know the specifics of what’s required of you. Your company will need to fill out two forms: the 1095-C and the 1094-C, the latter of which is the transmittal form. These two forms are the basis for the IRS issuing the ACA employer mandate. The information you enter into these forms will determine whether or not your employees qualify for a tax credit. For the 1095, you’ll need to know information like:
- The names, dates of birth and Social Security numbers of an employee’s dependents
- Whether insurance is offered to an employee for every month of the year
- Whether your company is using a safe harbor
For the 1094, you’ll need some different information, like:
- How many full-time employees you have for each month
- How many total employees you have for each month
- Whether or not you’re part of a controlled or affiliated group for tax purposes
- Whether or not you’re taking advantage of transition relief
But for many companies, this entire process won’t truly begin for a while yet. So what can these companies do now? According to Bradley, if you want to begin preparation for compliance with the ACA now, you should:
- Review processes and procedures
- Review your legal entity ownership structure
- Coordinate your vendors – you have to determine who has which pieces of the puzzle, what your expectations are, and who’s driving the bus
There are a number of requirements, qualifications, and classifications that you should check in order to make sure you’re fully aware of your company’s status before engaging in ACA preparation.
- Meeting Employer Mandate requirements
- Qualification for transition relief rules
- Classification of employees
- Classification of workers – In particular, the IRS may reclassify independent contractors as employees. In this case, you may not realize that the person you’re not offering insurance to, who you’d thought was classified as a contractor, is actually a full-time employee for whom your company is responsible.
In order to demonstrate that you’ve met the requirements of the Employer Mandate, you must prove that your company offers:
- MEC – minimum essential coverage
- Coverage that provides minimum value – this could be at a higher threshold than MEC, so it’s something to watch out for
- Affordable coverage – it’s up to you to determine and provide this information on your own; safe harbors may factor into the equation
- Coverage to substantially all full-time employees
At this point, Bradley pointed out that a new ACA disclosure agreement requires that employees receive a summary of the insurance plan that your company provides. It is also imperative that you get waivers from employees who elect to turn down insurance that you offer.
There are also transition rules that your company can take advantage of in order to delay the date from which you have to provide insurance:
- Mid-size applicable large employers – employers with greater than 50 but less than 100 full-time and equivalent employees may qualify for this rule. However, it’s not just about your company size – you also have to meet other requirements: you can’t have artificially deflated your headcount, and you can’t have decreased the value of your benefits. The employer’s contribution has to remain consistent from a dollars perspective, and you can’t decrease the number of employees or the classification of employees that are available.
- Qualification for health plans on fiscal year instead of calendar year – If your company works on a fiscal year, you may qualify for the chance to delay the start of your first ACA year until the first day of your fiscal year in 2015. However, your fiscal year plan has to have been in place since at least December 27, 2012.
Your company also needs to decide upon a method of classifying your employees:
- Variable hourly vs. full- time vs. part-time vs. seasonal
- You need to have a system/process in place
- Support how you arrived at this conclusion
Creating a checklist for compliance isn’t a bad idea – it may be a good resource to fall back on in order to ensure that classification is administered consistently across your business.
For further insights and best practices from Sean Bradley on how your company can be prepared for ACA compliance, check out Bradley’s deep dive into ACA Transition Relief!