Reporting Requirements for the ACA Are All in the Numbers

Plan sponsors will need to compile detailed, month-by-month information to fulfill reporting requirements to the Internal Revenue Service (IRS) and employees regarding “affordable health care” for “full time employees.” Self-insured employers must also report on minimum essential coverage provided to employees for each month in 2015.

There’s no one-size-fits-all solution that answers the challenge of ACA reporting, Amy Bergner, managing director of health care and benefits at PwC, said during a recent webcast. Accurate reporting will require the resources of a number of departments and experts both in and outside a firm, she said.

In early 2016, companies will need to submit new forms to the IRS (Forms 1095-C and 1094-C), which will take considerable planning and execution across disparate systems and diverse employer specialty areas—such as tax, payroll and HR.

A key component of the mandate is determining eligibility. This can be done by a monthly measurement in which full-time status is determined based on the hours of service for each calendar month. This is potentially challenging for employers, PwC says, because plan sponsors often do not know someone is eligible until it is too late. The look-back measurement determines full-time status using the hours of service in a prior period.

Of webcast attendees who will need to begin accounting for their full-time employees, just under 50% have already begun tracking employee hours to determine status; 16% are unsure and 10% have not.

The stakes could be high, Bergner warned, and employers can face penalties if the accounting is not accurate or there are gaps in coverage offered to eligible employees.

Understanding how full-time is defined is critical, said Kristin Lewis, director of product management for Equifax Workforce Solutions, and the IRS is likely to be strict. “The government is expecting to collect about $8 billion in 2016 for penalties incurred in 2015,” Lewis said, “and has every intention of enforcing the mandate in significant ways.”

The experts explained that a penalty applies if an employer fails to offer minimum essential coverage to 95% of its full-time employees and their dependents, and if any full-time employee obtains subsidized coverage on an exchange. The following formula to set the penalty is used: $2,000 x (total number of full-time employees minus 30).

If insufficient coverage is offered, a different penalty is used. This is applied if a full-time employee receives a premium tax credit because coverage was not offered to them, or if the employer offered coverage that was not affordable, or did not provide minimum value. The formula for the penalty is: $3,000 x (number of full-time employees receiving subsidized coverage on a public exchange).

Lewis noted that a great level of detail is required in the related forms, so she recommended tracking the data by an observable method and on a regular basis. “So there’s no scrambling at the end of the race,” she cautioned.

According to Steve Chapman, a partner in PwC’s financial services practice, data will drive the reporting. He echoed the need for collecting good data on a regular basis.

One tip, from Richard Inserro, a partner in PwC’s banking and capital markets practice, is to aggregate data each month. Determine the process you’ll use, Inserro advised. A month can go by quickly, so firms need to set controls around the process to streamline it, in order to capture data in a timely and effective way.

A number of technical challenges exist under the ACA, but there are also data challenges to consider when developing a compliance program. For example, when identifying “full-time” employees, some complications enter in with workers taking leaves of absence, or those who work for multiple companies within the group, or employees who work variable hours.

Data challenges can stem from needing to gather data from disparate systems, some of which may be external, on a monthly basis. Considering the sensitivity of the data needed for filing, data security is also a critical issue.

The process of full compliance starts now, with employers preparing data and designing their ongoing operating processes so they’ll be ready for full 2016 reporting. Information, starting in January, should be collected and tracked monthly. In January 2016, forms are distributed to employees. In March 2016, the forms are electronically submitted to the IRS.

Form 1095-C is an employee statement that details the date coverage was offered; the effective date of coverage; monthly cost of plan offered; measurement method (i.e., lookback versus monthly measurement) and affordability safe harbor, among other data.

Form 1094-C is filled out by the employer, detailing the number of full-time employees, how they are assessed and accounted for, the total employee count, and an aggregated group indicator.

Of those attending the webcast, slightly more than a quarter (27%) said they would use a vendor to prepare these forms; 17% said they would do them in-house; and the most (40%) said they were still unsure.

“You can’t wait to address these problems,” Inserro said. Not only does the production need to be done monthly but it must also be examined in aggregate. He recommended controls in place to find obvious errors, pointing out that data is being used in a way it wasn’t intended to be used. 

Does the data come from HR? From payroll? “If no one steps up and takes ownership (of the data), the problems repeat themselves over and over again,” Inserro said. Given the law’s far reach and breadth, it’s an issue all organizations must look at.