Employers and health plan sponsors alike have numerous obligations under the Affordable Care Act (ACA) that prove compliance to be a tricky area to master. Oftentimes, when meeting with clients regarding ACA compliance, I am frequently asked, "What are potential ACA audit items besides the well-known excise taxes that apply when employer health insurance coverage is not offered or that coverage is not affordable?" Here are 8 of the most common factors to be aware of during an ACA audit.
1. Be aware that the 9.5% affordability factor increases each year. The 9.5% affordability component is indexed for inflation and thus it will likely rise each year. For 2016, that factor is 9.66% and for 2017, it is 9.69%.
2. Opt out credits or payments affect affordability calculations as of 2017. Be advised that the IRS intends to include in affordability calculations any credits or payments made to an employee who declines to enroll in the employer’s group health plan.
3. Similarly, you need to include contributions to an HRA account or FSA account in the affordability calculations. If the employer contributes to an HRA or FSA account, these contributions must be included in calculations when determining whether an ALE has made an offer of affordable coverage.
HRA contributions count toward the employee's required contribution if the HRA is integrated into the ALE’s group health plan and the funds the ALE makes available under the HRA may be used by the employee to pay the employee’s share of contributions for major medical coverage or pay the employee's share of the contributions for major medical, cost-sharing, or other health benefits not covered by the plan in addition to premiums. In order to count the FSA contribution for affordability purposes, three conditions must be met:
a) the employee does not have the option to take the flex credit as a taxable benefit (i.e. cash);
b) the flex credit may be used to purchase minimum essential coverage; and
c) the flex credit may only be used to pay for benefits providing medical care as designated under Internal Revenue Code §213.
4. A reduction of hours does not affect coverage during a stability period under the Look Back Method. If you are using the look back method for eligibility calculations-which is the case for nearly all of our clients- and an employee has a COBRA qualifying event due to a reduction in hours, he or she should still continue to receive health insurance coverage similar to other full-time employees since that employee is still in the employer’s stability period classified as a full-time employee.
5. Realize there is a different measurement period for newly hired seasonal and variable hour employees. This area of the ACA is too complicated for the scope of this article but generally speaking, if employees are hired for other than full-time status, be advised they have separate measurement periods the first year separate and distinct from your current workforce. Seek out assistance from your HNI representative if you are unaware of how to track these situations.
6. Know your coverage responsibilities for a change in employment status. An employee who is hired as a part-time, seasonal or variable hour employee, but who is later designated to full-time status during the measurement period has incurred a "change in status" during the initial measurement period and that employee must be offered coverage by the ALE no later than the first day of the fourth full calendar month of employment. However, if the employee changes to full-time status during his or her initial measurement period, and the initial measurement period ends sooner than the end of the employee's first full three months of full-time status, the ALE must offer the employee minimum essential coverage by the first day of the first month following the end of the initial measurement period.
7. Remember to review your codes for reporting on Form 1095. Last year everyone got a free pass so to speak by reporting information on the Forms 1094 & 1095 based on a “good faith” basis. For 2016 and going forward, penalties will apply for reporting errors. In addition, the 2016 1095-C instructions include two additional code options to the already lengthy list of applicable codes.
8. Do not consider automatic enrollment of health coverage. If you require an employee to enroll in your health plan, the plan must be affordable under the Federal Poverty Line Safe Harbor, otherwise the IRS will not count your "offer" as a valid offer.
If any of these items raise questions to you or if you are uncertain as to how one or more of these situations might apply to your group health plan, now is the time to address them. With the presence of continuing DOL audits and HIPAA audits, it would be prudent to also brush up on all ACA compliance matters.