What is ACA compliance – and how does it really work?

"Maintaining ACA compliance is critical for all organizations."

Health care laws, like the Patient Protection and Affordable Care Act, aren't known for how easy they are to read or understand. So a seemingly straightforward question like "What is ACA compliance?" isn't simple to answer.

Then again, as an HR professional, your responsibility isn't to read the ACA and ace a bunch of multiple-choice questions about the legislation: it's to follow the law's guidelines regarding reporting, documentation and data management surrounding your health insurance plan offerings. If you think you might be in need of a refresher on the essential stipulations and best practices for ACA compliance – particularly in light of open enrollment being just a few short months from now – we've got you covered. 

Foundations of ACA compliance

While the basic tenets of the ACA's employer requirements have been an HR hot topic – and a political talking point – for nearly a decade now, let's go over them briefly: 

  • All U.S. businesses with 50 or more full-time or full-time-equivalent employees must offer essential health benefits to at least 95% of staff during any given month. (The specific standard is "an average of at least 50 full-time employees [working] on business days" during a given year. Companies employing 50 or more workers for 120 days of the year or less – e.g., during high-volume seasons – or those that specifically classify all workers at and above the 50 threshold as seasonal employees in their contracts are exempt from ACA requirements.) 
  • These services must meet the Minimum Essential Coverage threshold established in the ACA's text: paying at least 60% of workers' total medical costs, including "substantial coverage of physician and inpatient hospital services."
  • They must also qualify as "affordable" based on standards agreed upon by the IRS and the Department of Health and Human Services. For the 2019 plan year, employers had to offer at least one plan that costs workers no more than 9.86% of their monthly household income. For 2020 plans that employees will start enrolling in this November, the affordability standard is slightly less – 9.78%. You can also use safe-harbor standards such as W-2 wage, hourly wage multiplied by 130 hours/month (as of the plan year's first day) or the individual federal poverty level six months prior to that first day.
What is ACA compliance - and how does it really work?Ensuring ACA compliance is one of your biggest responsibilities as an HR leader.

Then there are the penalties:

  • Breaking any of these rules for a particular month requires employers to pay a penalty equal to the number of full-time employees on payroll during that month, multiplied by the applicable payment amount – 1/12 of $2,000; about $166.70 when rounding to two decimal places.
  • Also, if you offer coverage to 95% of your workforce for a month but at least one employee received a tax credit to pay for coverage through an ACA health insurance marketplace during the same period – ostensibly because said worker wasn't offered coverage or only received an offer below minimum-value standards – the applicable payment figure is 1/12 of $3,000 ($250), leading to a steeper penalty. 

Properly managing the ACA's requirements

Even though ACA compliance is most broadly assessed on a yearly basis when your business submits Forms 1095-B and 1095-C for all employees (who concurrently turn in 1095-A), penalties come into effect based on falling below the coverage thresholds for particular months. (Don't forget: those forms' electronic filing deadline is March 31, 2020 if you have 250 or more 1095-Cs.)

So it makes sense to implement a monthly system for overseeing your organization's adherence to ACA guidelines, according to First Capitol Consulting. Every 30 days or so you should go through all workers' files and make sure all of the appropriate paperwork is there – and that it's completely and accurately filled out for the current reporting year. Key documents include:

  • Summaries of benefits
  • Coverage offers (and acknowledgment that workers received them)
  • Rate contribution sheets
  • Enrollment and waiver forms
  • Medical invoices

If the IRS believes your company violated an ACA requirement but isn't certain, the agency conducts a penalty assessment of all that paperwork. In addition to penalties triggered by failing to provide coverage, there are also fines for missing or undelivered 1095-Bs, -Cs and other required forms. While not as big as the sums demanded for nonexistent benefits – $250 per missing or problematic document – multiple failures add up. A monthly internal audit of your ACA-related paperwork can do your company a world of good, finding discrepancies so you can address them before the IRS hits you with a bill. 

You can mitigate risk of such fines by using data management tools in HR software to wrangle all of this info. Just make sure the digital versions of those files are subject to the same monthly check-ups as your other ACA paperwork. 

Preparing for potential changes

There's been a lot of talk about revamping health care in the U.S. in the last few years. Under the stewardship of then-House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell, Congress tried to pass two bills that would've "repealed and replaced" the ACA. As NBC News noted, the Senate bill failed to pass, so the ACA didn't go anywhere.

Throughout 2019, as various candidates campaign for the opportunity to run against President Donald Trump in the 2020 election, health care proposals have been among the biggest parts of their platforms:

  • Some presidential hopefuls, like former Vice President Joe Biden, favor approaches that would largely mirror the ACA while more strictly regulating controversial provider and insurer practices.
  • By contrast, Senators Bernie Sanders and Elizabeth Warren tout different versions of "Medicare for all" – universal coverage for every American that takes health care almost entirely out of private institutions' hands. (It would largely eliminate employer-sponsored care, by association.)
  • If the president is re-elected and the Republican Party retakes the House and establishes more control of the Senate, there could be ACA reform more amenable to the insurance industry and the overall private sector. 

It's more likely than not that at least some change is on the horizon for the ACA. As an HR leader, it behooves you to examine how the most probable changes might affect your organization and make appropriate contingency plans for each one.