Anyone who has put off Christmas shopping until Dec. 24 understands that things can get a little hectic at the last minute. Human resources professionals who took a breather when the Patient Protection and Affordable Care Act’s employer mandate was delayed likely feel the same way.
“For some companies, time is of the essence,” says Ash Shehata, a principal in the Minneapolis office of KPMG. “Employers have about two months to update their data collection systems in order to gather information for the 2015 calendar year and be able to report it in 2016.”
Larry Grudzien, an attorney in Oak Park, Illinois, who spends much of his time advising clients on PPACA compliance, agrees that time is running short.
“I work with a number of insurance brokers and HR professionals who realize this is not going away,” he says. “Employers are starting to realize that they are going to have to do something about it.”
Day of reckoning
Although employer mandates have always been a part of PPACA, the Obama administration delayed implementation of the employer mandate and associated reporting requirements from 2014 until 2015. Beginning Jan. 1, employers with 100 or more full-time workers must provide affordable health insurance to 70 percent of their employees or pay a penalty of $2,000 per worker. The Internal Revenue Service refers to these penalties as “shared responsibility”:
Under the Employer Shared Responsibility provisions, if these employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents), the employer may be subject to an Employer Shared Responsibility payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called a Health Insurance Marketplace.
What should employers be doing in the next two months to make sure they are in compliance? Grudzien has several suggestions.
Accurately categorize employees. “There are three categories — full time, part time and variable hours,” he says. “Make sure employers are in the correct category, which can be difficult for those with variable hours. Any new hires will have to be classified as well.”
One reason why this so important is that the employer mandate for 2015 is based on the number of full-time equivalent employees. Employers with the between 50 and 99 employees will receive a one-year reprieve until 2016.
Analyze insurance coverage. Insurance plans must be affordable, according to PPACA. Employer coverage is considered affordable if the employee’s share of the annual premium for the lowest-priced self-only plan is no greater than 9.56 percent of annual household income.
The law also requires plans to offer minimum value, which it defines as paying for at least 60 percent of medical expenses on average for a standard population. The Department of Health and Human Services has released a minimum value calculator for employers.
“Even with minimum essential/minimum value coverage in place, a full-time employee for whom the basic single employee bronze level policy is unaffordable can generally go to an exchange and get subsidized coverage, which will be reported to the IRS and result in a bill from the IRS to the employer for the penalty,” Shehata says.
Determine if transition rules apply. Several transition rules have been enacted, such as postponing the mandate until 2016 for businesses with fewer than 100 employees. Larger companies that offer coverage on a non-calendar year basis will not be subject to penalties until the beginning of their plan year. Nevertheless, they must maintain records for the entire 2015 calendar year.
Set up a reliable recordkeeping system. This may well be the most important step, because it is an area in which businesses can quickly run into problems.
“Make sure you have your ducks in a row, because every full-time employee will receive a statement in January 2016,” Grudzien says. “Although businesses with between 50 and 99 employees are exempt from the employer mandate for a year, they still are required to keep records for 2015.”
Now is the time to make sure effective systems are in place.
“With 2014 coming to a close, HR teams should discuss the new form requirements with their IT teams to begin putting the systems into place to collect all the necessary information mandated by the IRS,” said Karen Field, a principal in the Washington, D.C., office of KPMG. “Companies may need to set up systems to collect and report information (typically on a monthly basis) about to whom coverage is being offered, such as Social Security numbers, cost, affordability and value.”
Form 1095-C and Form 1094-C apply to large employers, and require reports detailing coverage offered to each full-time employee, whether coverage meets the minimum essential coverage, minimum value rules and whether the coverage was offered to almost all full-time employees (employees who work, on average, at least 30 hours per week) and their dependents, she explains.
Self-insured large employers must fill out Parts I, II and III of Form 1095-C for each employee. Employers who purchase health care coverage insurance for employees are also required to provide information, but not as much (their insurers fill out forms reporting the rest of the information). Batches of Forms 1095-C are transmitted with Form 1094-C.
Internal communication is critical.
“It’s important for HR to commit the time needed to understand the data requirements, communicate these requirements to IT and to work with the benefits administrator to collect and store the appropriate data,” Shehata says. “If the information is not reported accurately or retained properly, even if the plan is compliant, it can translate into wasted resources and expenses.”
As the deadline quickly approaches, perhaps the best advice for employers is to seek professional expertise wherever they can find it.
“Health care reform is complex, convoluted and confusing,” Grudzien says. “Everyone is nervous about making a mistake and being penalized, which easily can happen. Talk to your broker, accountant attorney and any other professional that you can. You can’t do this alone.”