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  • Writer's pictureElijah Ugoh

5 Important Employer Considerations for ACA Compliance Reporting in 2023

5 Important Employer Considerations for ACA Compliance Reporting in 2023
5 Important Employer Considerations for ACA Compliance Reporting in 2023

The intent of the ACA is to reform how America's insurance and health systems work to ultimately improve the quality, access to, as well as individual and public cost of health care. To ensure the Affordable Care Act (ACA), also known as Obamacare, continues to serve the American people, the Center for Consumer Information and Insurance Oversight (CCIIO) has been charged with helping implement many reforms contained in the Affordable Care Act.

ACA-compliant individual and small-group policies must conform to the regulations set forth in the Affordable Care Act. This includes coverage for the ten essential health benefits without any annual or lifetime coverage maximums. For example, Applicable Large Employers (ALEs) — having an average of 50 or more full-time or equivalent employees — must adhere to the ACA annual reporting policies to remain compliant when it comes to group health plan offerings.

To help employers stay informed of what is obtainable ahead of 2023, we have provided a quick checklist of the five most important considerations on ACA compliance that Applicable Large Employers must take into account when reporting on their 2022 coverage in the first quarter of 2023.

Adjust top a Lower Affordability Threshold

For 2023, the IRS has set the health plan premium affordability threshold at 9.12 percent of pay — down from 9.61 percent in 2022. This means that ALEs preparing for 2023 must take note of this change, as it will affect how much they can charge employees for health coverage and still avoid an employer-shared responsibility payment (ESRP).

Note that the ACA imposes an employer shared responsibility payment (ESRP) on ALEs that offer qualifying coverage to full-time employees (FTEs), but for which the employee share of the cost for the lowest tier self-only coverage option is deemed unaffordable. This is because the ACA bases health care affordability on an employee's household income and indexes the percentage annually for inflation.

Stiff Penalties for Employer Shared Responsibility Provisions

Employers must understand that the penalties for ESRP are always rising. The IRS provides annual updates on the inflation-adjusted amounts that it will assess against employers that fail to make a group health an offer of coverage to at least 95 percent of its FTEs (A penalty) or makes a coverage offer that does not meet the ACA's minimum value standard or either unaffordable to employees (B penalty).

In 2023, the A penalty will attract a fine of $240/month while the B penalty will attract a fine of $360/month on defaulting ALEs. With the rising cost of noncompliance, employers have enough incentive to examine their group health plan offerings to ensure broad and adequate coverage to full-time employees that have at least one self-only option that is affordable.

The Affordability Safe Harbors

The majority of ALEs do not know an employee's overall household income, so federal regulators created three safe harbors to enable them to judge whether a coverage offer is affordable or not for the employees. These are:

  1. W-2 Safe Harbor: The W-2 safe harbor depends on the wages the employer reports in Box 1 of an employee's Form W-2.

  2. Rate of Pay Safe Harbor: This option is based on each employee's rate of pay at the beginning of the coverage period. But it allows for adjustments for an hourly employee when the rate of pay decreases during the coverage period.

  3. Federal Poverty Line safe harbor: The Federal Poverty Line safe harbor considers an offer of coverage to be affordable if the required monthly contribution is below or not more than 9.5 percent (adjusted annually) of the federal poverty line (FPL) for a single individual for the applicable coverage year, divided by 12.

Keep in mind that the government usually releases an updated FPL table after the start of each calendar year. This means that employer plan sponsors can use the FPL table published within six months prior to the start of the next coverage plan year.

Deadline for Forms 1094-C/1095-C

The IRS expects ALEs to annually furnish it with individual statements (Form 1095-C) and file Forms 1094-C and 1095-C, providing important information about the group health coverage that they offer their full-time employees. The instructions have also eliminated references to individual mandate penalties. For the 2022 reporting cycle, employers are expected to furnish individual statements to full-time employees latest March 2, 2023.

Applicable large employers must file applicable reports with the IRS latest February 28, 2023 (by paper) or by March 31, 2023 (if they’re filing electronically). Note that it is mandatory for ALEs filing more than 250 forms to file them electronically.

Using Current Draft ACA reporting Forms

Earlier in July this year, the IRS issued draft ACA Forms 1094-C and 1095-C for the 2022 tax year. Although there doesn’t seem to be any significant change in the documents this time, it’s important to note that the forms in their current state are drafts and are subject to changes pending new passing legislation to address issues arising.

The draft versions of Form 1094-B and Form 1094-C, Form 1095-B, and Form 1095-C issued by the IRS allow employers to report offers of coverage for 2022. Sponsors of self-funded plans that are not ALEs will use Forms 1094-B and 1095-B, while ALEs will use Forms 1094-C and 1095-C.

Wrapping Up

Considering that the IRS is increasingly less lenient with these basic reporting errors, it is necessary for employers to fully understand their Affordable Care Act reporting obligations to avoid penalties. Employers that are facing their first reporting cycle should take time to review the 2022 draft forms.

When it comes to providing employees with an affordable health insurance plan, employers may be liable for a penalty if the plan does not provide minimum value to its full-time employees and their dependents. However, partnering with an industry-experienced benefits broker like Quantum Benefits can help you seamlessly navigate the entire process. At Quantum Benefits, we provide you with premium affordable benefits solutions for your employees.

Have more questions about providing ACA-compliant health insurance? Give us a call today at 203-946-0320 or fill out our contact form to speak with a representative.

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