Is Outsourcing the Key to Avoiding ACA Penalties?
According to an ADP report, a significant number of organizations surveyed found the ACA compliance and reporting process more challenging and time-consuming than expected.
According to the ADP report, Four ACA Compliance Challenges Still Impacting Employers, more than half of the organizations surveyed handled ACA compliance and reporting internally in 2015, but a significant number of them found the process to be more challenging and time-consuming than expected. As a result, more than one-third indicated they were considering changing the way they handle ACA compliance.
ACA Penalties and Informational Reporting
The ACA requires organizations with 50 or more full-time and full-time equivalent employees to offer health coverage to at least 95 percent of their full-time workers, according to the IRS. Failure to do so exposes the employer to potential penalties that are triggered if a full-time employee obtains subsidized health insurance on the exchange instead. But penalties are also triggered when organizations fail to complete their informational reporting accurately and on time. And potential penalties are steep, at $270 per form for forms due in 2020 and over $3.3 million maximum per calendar year, according to the IRS.
To avoid ACA penalties for 2018 reporting, Form 1095-C should have been distributed to full-time employees and individuals enrolled in the employer's self-insured plan by March 4, and informational reporting must be filed with the IRS by the end of February or March, depending on whether electronic filing is used. According to the IRS, electronic filing is required if an organization has at least 250 informational returns.
According to the ADP report, 40 percent of employers didn't meet the original deadline in 2017 for distributing Form 1095-C to their employees, and 10 percent of employers simply didn't provide Form 1095-C to their employees at all, possibly out of frustration with the process.
How Much Is Your Time Worth?
According to the IRS, Form 1094-C takes about four hours to complete and file, while Form 1095-C takes about 12 minutes. But 40 percent of employers spent more time than that to complete the forms, according to the ADP report.
Even if you are able to complete Form 1095-C in 12 minutes per form, that adds up fast for larger organizations. If you have 500 employees, you're looking at 100 hours at a minimum to complete the forms, all of which have to be distributed to employees by the deadline. If you have 5,000 employees, 12 minutes per form starts to add up to an enormous task, depending on your internal resources.
Will You Have All the Data You Need in January?
Organizations also have to bear in mind that ACA informational reporting is a year of diligently tracking eligibility (since penalties are assessed on a month-by-month basis), making coverage offers, ensuring affordability and compiling data. According to ADP, the number one roadblock employers encountered in 2016 was that benefits data wasn't ready in time. This makes a strong case for using an ACA compliance system that integrates and consolidates data throughout the year, ensuring that it's ready in January, when Form 1095-C typically has to be completed and distributed to employees.
Is Outsourcing the Answer?
While more than half of employers indicated they opted for in-house reporting during the first go-round of ACA informational reporting, a significant number of them are considering other options going forward. Employers feel they either don't have the time to do the informational reporting themselves, or they lack the internal expertise to do so without hiring new staff.
As ACA informational compliance continues, organizations are increasingly considering outsourcing their ACA compliance. Doing so is a good way to avoid ACA penalties that arise from failure to comply with the ACA's informational reporting requirements, and it could also save time, money and headaches for organizations that struggled with ACA informational reporting in the first round.
Go Deeper
Read how Elwyn, Inc. automated their health care reform compliance process.
For more Health Care Reform insights and sample penalty letters/responses, watch ADP's webcast Workplace Compliance Spotlight: It's Been Quiet on the Health Care Front….Or Has It?
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