With the 2016 Affordable Care Act (ACA) reporting tax year quickly coming to a close, it is extremely important for employers to remain diligent in their focus on ACA matters. With many other activities consuming a human resources/benefits professional’s time during this time of year, ACA compliance is a topic that may be put on the back burner for more pressing matters. However, it is important to remember that the IRS is tightening its requirements in 2016, and the time to take action is now.
No longer are employers operating under the “good faith” waivers enjoyed in 2015, but instead accuracy has come to the forefront. 2016 marks an opportunity for employers to enact new strategies to meet the highly complex regulations and avoid costly penalties.
The risks of ACA non-compliance are real, and failure to meet the 95% offer of coverage threshold, affordability safe harbors, and timeliness/accuracy requirements could result in significant penalties, excise taxes and/or financial statement impacts. No large employer (i.e., one with more than 50 full-time employees and full-time equivalent employees) is immune to the risk, and the key to avoiding these non-deductible excise taxes is to proactively manage your ACA compliance.
This is especially true for hospitals. Large networks, complex corporate structures, merger and acquisition (M&A) activity, and worker classifications are just a few of the different issues that hospitals must consider. Ernst & Young LLP recognizes the support that is needed to help hospitals work through the many nuances of the ACA reporting process.
While most affected employers now understand that ACA compliance starts with offering affordable health care coverage to full-time employees, they are quickly learning that ACA compliance doesn’t stop there.
Ali Master is a partner with Ernst & Young LLP and is the National Director of ACA Services. “The more we studied the law, the more we realized that our clients will need support with the ACA,” says Master.
With all of this complexity, there are many aspects of the ACA that are often misunderstood. What are five of the most common misconceptions about ACA compliance?
Misconception No. 1: It’s one-size-fits-all
According to Master, this is one of the most common misconceptions regarding ACA compliance. “The needs of employers may be very different depending on different facts and circumstances, such as employee size, corporate structures, M&A and how data is managed. In addition, many employers mistakenly believe the information contained on each form is going to be very similar. But the reality is that even an employer with a noncomplex workforce will still have a variety of code patterns,” says Master.
Ann Bradshaw, a partner at Ernst & Young LLP, advises clients on compliance and reporting aspects of the ACA. Bradshaw serves as the ACA Southwest Region leader.
“Early during 2015, I remember speaking with an employer whose view was, ‘How hard can this be, it’s just like another W-2.’ That couldn’t be further from the truth,” explains Bradshaw. “Complete and accurate ACA reporting is really much more complex than I think most employers realized going into the 2015 reporting year.”
Misconception No. 2: ACA compliance really just involves getting forms out the door
According to Bradshaw, there are actually many steps involved for hospitals to prepare for compliance as employers under the ACA. For many, reporting under the ACA represents the first time that HR, payroll, scheduling and benefits offer/enrollment data have all needed to be brought together and analyzed for a single purpose. Understanding what to do with that data is critical to staying compliant and to making better HR business decisions. The most critical step, Bradshaw says, is tracking and analyzing the hours, compensation structures and coverage offerings for the workforce, followed by completing the tax forms. If the first is done inaccurately, an organization may be challenged to meet all of the accuracy related expectations of the law.
According to Bradshaw, this is one area in which hospitals have extraordinary challenges because their workforce tends to be complex and dynamic.
“If an organization isn’t tracking and analyzing its workforce in the context of the ACA rules and special definitions, there may be hidden risk that needs attention,” says Bradshaw.
Misconception No. 3: The penalty risk for non-compliance isn’t that large, and we don’t need to worry about it.
Wrong, according to Bradshaw and Master. If an employer doesn’t offer coverage to 95% of its full-time workforce, the potential tax exposure would be based on the total number of full-time employees in the employer's workforce; including those actually offered coverage.
While this tax may be the most financially concerning, there are additional penalties where the excise tax is assessed on a smaller population. For example, employers face an excise tax per individual if employer offered coverage is not affordable for the employee (based on standards established under the ACA) and that employee receives coverage through a state Marketplace qualifying for a tax credit to assist in paying the premium for such coverage. Employers also face various penalties – more than $500 per form – for late or inaccurate ACA reporting, which can be particularly troubling for hospitals due to their inherent complexities.
Misconception No. 4: Only salaried, full-time employees need be monitored under the ACA
Poor tracking of employees could be one of the most costly pitfalls for health care organizations due to their unique workforces. Within health care provider organizations, we see many different types of employment scenarios that add to the complexity, and oftentimes can be overlooked, Bradshaw says.
“In the health care sector, there may be per diem, on-call, traveling nurses, part-time, and affiliations with educational institutions – which can result in different types of issues related to compliance,” says Bradshaw.
It is critical that hospitals invest in truly understanding who they are employing and whether those individuals are considered full-time employees under the ACA standards.
Misconception No. 5: Best-in-class hospitals rely only on the compliance department for ACA compliance
What’s the secret to becoming a best-in-class organization? Contrary to common practice, it is not achieved by assigning all ACA responsibilities to a single isolated department.
Bringing together strategy and critical thinking from multiple departments is often a key differentiator in meeting ACA compliance.
“It takes people who understand the data, it takes the HR team who understands the benefits and it takes the financial and tax teams, as well as third-party administrators, to contribute to the strategic planning,” says Bradshaw on the need for a blended team responsible for ACA employer-related compliance.
Where should a hospital striving for best in class begin? “Start by getting the right people involved in the process,” says Bradshaw, adding that when cross-functional teams are focused on the ACA compliance responsibilities, it is much more likely that an organization will be able to effectively and efficiently manage and minimize its risks associated with inaccurate ACA compliance and reporting.
Views expressed in this article are those of the authors and do not necessarily represent the views of Ernst & Young LLP.
This article is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances.