ACA compliance: 7 strategies to ensure you’re prepared
This article tells you why having the right data is critical for ACA compliance and gives you seven strategies to keep data accurate and complete.
One major pain point for benefits professionals and advisors is making sure you have all the right data about employees and their health care coverage. Get this right, and you’re more likely to cruise smoothly through the potentially rocky waters of ACA compliance. Get it wrong or put it off, and you could be looking at hefty fines that hit the millions of dollars annually.
This article tells you why having the right data is critical for ACA compliance and gives you seven strategies to keep data accurate and complete.
Why good data, continuously collected, is critical for ACA compliance
As benefits leader and advisors, you know the ACA has strict rules about reporting employees’ demographic data and health insurance coverage. You’ve got to give detailed info to the IRS and to employees: names, Social Security numbers, hours worked, the health benefits offered, and a lot more. With all of these reporting requirements necessary for compliance, it’s imperative to make sure your data is accurate and complete.
Related: As compliance become more complex, employers turn to brokers for guidance, survey finds
You’ve also got to use this data to figure out if you’re subject to certain ACA rules, like the employer mandate. Without proper data analysis, you might fail to know you’re supposed to offer health insurance to employees. And, failure to comply could mean hefty fines.
Penalties for non-compliance can be tough, and they’ve gone up recently. You don’t want to get caught off guard.
- 4980H(a) penalty. This penalty can be levied when a company:
- Fails to provide Minimum Essential Coverage (MEC) that is affordable and meets Minimal Value (MV) to at least 95% of its full-time employees and dependents, and
- At least one employee receives a Premium Tax Credit (PTC) for purchasing coverage through a state or federal ACA marketplace during the year.
The penalty increased slightly for 2024 from $240 a month to $247.50, or $2,970 annualized, per employee. The amount may seem insignificant, but it can add up because the penalty applies across the entire workforce (less an exemption for the first 30 employees). For example, if an organization with 300 full-time employees fails to meet the 95% threshold and any employee receives a PTC for 12 months, the annualized 4980H(a) penalty would be $801,900 ($2,970 X 300 employees – 30 employees exempted).
- 4980H(b) penalty. This is similar, but is issued per violation and increased this year to $372 a month, or $4,460 per year, per employee, up from $4,320 in 2023. The IRS will issue a 4980H(b) penalty when an employer offers full-time employees coverage that is either unaffordable, that fails to meet MV, or both. Like the 4980H(a) penalty, the organization must also have at least one employee obtain a PTC from a state or federal health exchange. For example, an employer with 10 full-time employees who each received a PTC for six months would incur a penalty of $22,320 ($372 x 6 months x 10 employees = $22,320).
- Failure to file penalty. The IRS also imposes fines on organizations that fail to file information returns on time and provide correct payee statements. If the penalty amount isn’t paid in full, monthly interest can incur as well. For 2024, this fine can be $310 per return to organizations that submit 1095-C forms late and after Aug. 1, 2024. If the employer neglects their filing obligations altogether, the penalty increases to $630, per return. If our hypothetical company with 300 employees fails to submit the required 1095-C forms by Aug. 1, 2024, the IRS may impose a Failure to File penalty of $87,000 (which jumps to $174,000 for “intentional disregard” — failing to file at all).
- Failure to furnish penalty. Similar to the failure to file penalty, this penalty can be imposed on employers that do not furnish accurate 1095-C statements to employees and is also $310 per return, increasing to $630 for intentional disregard.
To stay on top of ACA compliance, you need accurate and complete demographic data for all employees (including those part-time folks who aren’t eligible for benefits) and their medical coverage info.
What’s Included in demographic data?
- Full names and Social Security Numbers: Make sure you’ve got the correct info for everyone.
- Employment status: Is the employee full-time, part-time, or seasonal? And, did an employee’s job status change during the year? Did they move from full-time to part-time or vice versa — and if so, when? You need to keep up with this data.
- Dates of employment: Keep track of when employees are hired and when they leave.
- Hours worked: This is crucial, especially for determining full-time status under the ACA. It’s important to note that how the employee is paid (hourly or salary) doesn’t drive their full-time or part-time status; it’s determined by the hours they’re reasonably expected to work.
What about medical coverage information?
- Coverage dates: Know the start and end dates for each employee’s coverage.
- Coverage tiers: Are they covered alone, with a spouse, or with the whole family?
- Coverage offered and declined: Document what healthcare benefits were offered and whether they were accepted or waived.
By keeping this data organized and accurate, you’ll make ACA compliance a breeze and avoid penalties. Ideally, you’d gather all this info during the new-employee onboarding process as part of your benefits administration system. But, if that didn’t happen — or even if it did — you’ll want a system in place to collect and review this data throughout the year.
Also: The 2024 compliance wave: What benefits advisors need to know
To avoid costly mistakes and ensure accurate data, benefits and HR leaders should urge their organizations to prioritize the accuracy and completeness of their ACA data. Here are seven tips to help you nail it.
7 tips to keep your ACA data game strong
1. Conduct regular audits
Think of regular audits as your safety net. Regularly checking your employee data helps catch and fix errors, missing information, or discrepancies that could undermine your ACA compliance. Make sure you’re verifying Social Security Numbers, hours worked, and the health benefits offered. Staying on top of this won’t just keep you compliant; it will also save you from last-minute stress.
2. Continuously track employee status
Keeping accurate records of every employee’s status — whether full-time, part-time, seasonal, or variable-hour — is key to staying ACA-compliant. Employers need a system that tracks these changes and alerts HR to verify and update records in real time. Here’s what to keep an eye on:
- Hiring and termination dates: Make sure you’ve got the right dates for when employees come on board and when they leave.
- Status changes: Document any shifts in an employee’s work status to ensure everything aligns with ACA reporting requirements.
- Leaves of absence: Keep meticulous records of leaves of absence, as these can affect an employee’s coverage eligibility.
3. Make tech your new best friend
Investing in HR tech like an HRIS, HRMS, or a benefits administration system with a complete set of solutions can make your life so much easier. These systems offer automated data verification, which streamlines data collection, reduces errors compared to manual data entry, and ensures everything is accurate and complete.
The right ACA technology partner is instrumental to having a successful reporting period. Be sure their system has built-in ACA validation features. For example, it should be able to field and batch errors, and then present them to you clearly and in a way that helps you resolve them. This analytical work will pay dividends by reducing the impact of lost time and resources within the HR department.
Staying proactive and leveraging the right tools will keep your compliance game strong and your stress levels low. Happy auditing!
4. Efficiently track your compliance benchmarks
Using a top-notch HR system isn’t just about storing employee data. It’s also about tracking compliance effortlessly. With an advanced HRIS, HRMS, or benefits administration system, employers get real-time updates and automated alerts that notify the HR team of important deadlines. This way, you reduce the risk of missing anything crucial.
5. Educate employees and keep them in the loop
Investing in employees’ education and communicating with them regularly about ACA requirements is key to staying compliant. Employees need to understand why it’s important to provide accurate demographic and benefits information. Regular training sessions can help them see how their data impacts compliance reports.
Here’s how you can ensure everyone is on the same page:
- Initial onboarding: Teach new hires the importance of accurate data right from the start.
- Ongoing training: Regular refreshers for all employees on updates in ACA regulations and their role in compliance.
- Clear communication: Keep open lines of communication between HR and employees. The right benefits administration system will help effortlessly create communication to encourage transparency and quick resolution of any reporting issues.
6. Work with IT
Benefits, HR, and IT need to work together for effective data management. IT can ensure data integration systems are running smoothly, while benefits and HR focus on the accuracy of the data being entered. This teamwork ensures everything flows seamlessly and enhances compliance.
7. Integrate and verify all ACA data
It’s not just about collecting data; it’s about making sure it’s correct across all platforms. Accurate ACA reporting relies on consistent, error-free data. Here’s how you can achieve that:
- Automated data integration: Use software such as a capable benefits administration suite of solutions that can integrate data from various HR systems to reduce human error.
- Regular data audits: Conduct checks to verify the accuracy of integrated data and catch discrepancies early.
- Centralized data management: Make data access, management, and verification easier by keeping everything in one place.
By keeping things simple and working together, you can make sure compliance efforts are spot-on.
The right ACA data makes a complex responsibility safer and easier
Yes, keeping up with ACA compliance can feel like a headache. But, it doesn’t need to be. The trick is to make sure data is up to date, complete, and accurate. Accurate demographic and medical coverage info is key to avoiding risks and hefty penalties. Paring it all down even more, the simplest plan for getting started is to implement:
- A robust onboarding process, to ensure you collect all necessary data from the get-go.
- Regular data audits, to keep all of ACA-related employee information up-to-date and accurate.
- Leverage technology, to streamline data management and ensure accuracy, including fully integrating all of the systems that handle people data; this is key to seamlessly capturing multiple data sources and ensuring accuracy.
Take the first step towards risk-free and efficient compliance today. A great place to begin is with tailored advice from experts in ACA and benefits administration to refine data practices and stay compliant with ACA regulations.
Kelli Smith is the Director of ACA Services at Selerix Systems, with over 20 years in the benefits industry.