Affordable Care Act 2016 Pitfalls – 7 Questions To Ask Your Clients

The Affordable Care Act has new surprises this year that can trip up employers and their advisors, experts warn.

In an interview with Accounting Today at the Midwest Accounting & Finance Showcase, held here this week, ADP vice president of strategic advisory services John Haslinger noted a number of new thresholds, limits and reporting deadlines that employers and their advisors will need to be aware of, and offered a four-step process that your business clients can follow to be sure they’re compliant:

1. Identify all full-time people for ACA purposes. “This means you need a lot of data,” Haslinger said. ‘You’re pulling data from four pretty disparate systems – you’re looking at payroll, benefits, HR and your time and absence management system.” He noted that he’s seeing lots of companies have trouble finding data on unpaid leave like jury duty, family medical leave and military service leave.

2. Offer minimum coverage to 95 percent of employees. This is assuming that they meet the 2016 threshold of 50 ACA full-time employees. Last year, companies had to offer it to 70 percent of employees. “If you miss that by one person – if you miss it by 5 percent plus one — and any one of them goes to the exchange and gets the federal tax credit, it triggers a penalty on every full-time employee you have of $2,160 per year per employee,” Haslinger explained. “That’s the big penalty. It’s massive.”

3. Make sure their coverage is affordable. Affordability can be measured in two ways. In the first, the plan must have at least a 60 percent actuarial value, meaning that it covers at least 60 percent of the employee’s health care expenses. (Haslinger noted that the Department of Health and Human Services has a tool on its Web site to help determine the actuarial value of a plan.) In the second, the plan must cost no more than 9.66 percent of Box 1 on an employee’s W-2, their monthly rate of pay, or the federal poverty level. The penalty here is assessed only for the individual employee for whom coverage is not affordable, not automatically across an employer’s workforce.

4. Be prepared to prove that you’ve done everything right. States have been slow to begin sending out reports about employees who are going to the exchanges, some employers often haven’t had a chance to weigh in. “About 15 to 20 percent of people nationally waive coverage every year – many get their coverage through a spouse or a parent – but some of those people went to exchanges, and they signed up, and they told the exchange things like, ‘My employer didn’t offer me affordable coverage,’” Haslinger explained. “They’re getting the subsidy, and the employer doesn’t know about it … and the likely thing is that the employer will be asked to demonstrate that they did the right thing. It might be an audit or a penalty assessment, but that’s where the rubber hits the road.”

“If you do all four of those things, you may still get a penalty, but you won’t have to pay it,” Haslinger said – providing you have the data and information to prove that you’ve been complying with the law.

“Our most complex clients are storing as many as 200 data elements for these – and some of them have to be calculated,” he continued. By contrast, the average W-2 requires around 30 elements, none of which need to be calculated.

“Make sure that your data is clean, and that you can access it years down the road,” he advised. The IRS has indicated it could take them up to 18 months from first filings to send out the penalties, so a company could find itself receiving an initial penalty assessment – which may not be correct – in late 2017 or early 2018 that is applicable to 2015. “I think a lot of companies are going to be shocked when that happens.”

With the rise of the on-demand or “gig” economy, Haslinger warned employers to be careful about who they count as contingent or contract employees, versus full-time employees. If a company misclassifies an employees as a contractor when they should be full-time, it could easily fall afoul of the 95 percent requirement and trigger a major penalty. “We’ve been telling employers that they should have all of their contractor relationships looked over by legal,” he said. “They’ll get a normal bell curve distribution — some who are clearly employees, some who are clearly not, and then a big gray blob in the middle, and that’s the part that really scares me.” Long-term temps through staffing agencies might also be a worry.

Finally, he noted that the IRS is saying that, unlike last year, there will be no extensions on reporting deadlines. Forms 1095-Cs will be due at the end of January (just like W-2s), while the 1094-C transmittal form that goes to the IRS for every 1095-C issued will be due at the end of February for employers with fewer than 250 1095-Cs, and by the end of March for those with more than 250.