Companies on Affordable Care Act: Don’t Let Me See Your ‘Sledgehammer’
Let there be no doubt about it, as Affordable Care Act compliance draws near, organizations without ACA systems in place could be on the hook for costly penalties.
With a little more than six months remaining until the Affordable Care Act goes into effect for part of the business world on Jan. 1, 2015, employers are most likely working to finalize their policies and procedures to comply with the historic health care law — if they haven’t done so already.
The U.S. Internal Revenue Service and U.S. Treasury Department gave employers concrete guidelines for compliance earlier this year. In February, the agencies jointly issued two comprehensive sets of final regulations related to providing coverage to full-time employees as well as employer-plan reporting procedures.
The law defines an affordable plan as one that does not cost more than 9.5 percent of an employee’s yearly income.
“There were a variety of changes — some significant ones, too. I know people have been working on their strategies for a very long time, but some of the things may have changed that they may not realize,” said Stephanie Smithey, an employee benefits attorney at Ogletree, Deakins, Nash, Smoak & Stewart in Indianapolis. “We want to be sure somebody who had developed a comprehensive strategy before the final rules were released in February doesn’t think that they’ve got it all right when they actually don’t.”
Getting “it all right” first and foremost depends on if the ACA even applies to an employer. According to the Treasury Department, the ACA does not require small businesses, those with fewerthan 50 full-time employees, to provide health coverage.
Employers with 50 to 99 employees are required to provide coverage to their employees. However, the final regulations in February gave those midsize employers until 2016 before any employer responsibility payments would apply.
Large employers with 100 or more employees will need to offer affordable health care coverage starting Jan. 1, 2015, to their full-time workers if they want to avoid paying the “sledgehammer” penalty, Smithey said. That penalty would be $2,000 per year for all full-time employees if one full-time worker isn’t offered coverage.
“If you miss a certain amount of people, then your penalty is calculated on almost your entire workforce. Even missing a few people can trigger a large, disproportionate penalty,” Smithey said.
One aspect of the final regulations issued last winter allows large employers to ease into offering their employees coverage. This new transition rule requires large employers to offer at least 70 percent of their full-time workers health coverage in 2015, before moving up to 95 percent in 2016. Failing to meet the 70 percent requirement will trigger the sledgehammer penalty for 2015, according to the Treasury Department.
The percentage requirements have made it critical for many companies to decide how many of their employees are either full or part time.
Charlie DeWitt, vice president of business development at workforce management software and services company Kronos Inc., said he has seen many of his company’s clients coming to Kronos for assistance in determining their full-time/part-time worker mix. When the 95 percent minimum goes into effect, employers have a much narrower margin for error and therefore a higher chance of being penalized for not providing coverage. DeWitt said a company with a clear understanding of which employees are full time and which are not greatly helps in avoiding the sledgehammer penalty.
“Say you want your full-time/part-time mix to be 70-30, how are you going to make sure you’re not pushing people from part time to full time? And if you are, how often does that happen? How are you going to manage all that in the future?” DeWitt said.
The second set of regulations released in February offers guidance on reporting procedures for mid- to large-size employers. The first report will be due in 2016. This seemingly faraway date could give some employers a false sense of security when it comes to this aspect of ACA compliance because it’s only May 2014, said Smithey, who suggested employers finalize their reporting procedures as soon as possible.
“Your systems really need to be up and running by Jan. 1, 2015, for it to be capturing the right data for 2016,” Smithey said. “For a sense of the big picture, companies will need to report the type of coverage they have, who was full time, how many employees it was offered to, if it’s offered to spouses and children, the pricing of the coverage and who took it.”