While the Affordable Care Act (ACA) has been in effect since 2010, midsized business owners can no longer afford to sit on the sidelines and ignore the potential business ramifications. For those companies that have grown beyond 50 full-time equivalent employees, 2015 has marked the first year they will have to record very specific information about the health care coverage they are offering to their employees.
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Yet many companies that live between Wall Street and Main Street still feel unprepared to meet the law’s complex requirements.
According to ADP’s Midsized Business Owners Study, more than 75% of midsized business owners lack confidence their organization understands all of the ACA regulations that apply to their businesses. This overall lack of confidence could be tied to the fact that some businesses still lack strategies for managing the ACA. Nearly one-third of survey participants indicate they have not put together a plan or strategy to control or lower the cost of providing medical insurance to employees.
As the old saying goes, “the best offense is a good defense.” Be prepared and understand the implications early on to save your business from unnecessary repercussions. Here are five things business owners need to know about the ACA immediately:
2015 is all about preparing for 2016
Now is the time to start recording information about health coverage, which means tracking staffers' hours, absences and how much is spent on health insurance. That’s because starting in 2016, employers with over 50 full-time equivalent employees as defined by the ACA will be required to report on health coverage offered to employees under the reporting provisions of the ACA.
Note that if you send errant or inadequate information to the Internal Revenue Service (IRS), you may be hit with penalties ranging from up to $100 per occurrence to a maximum of $1.5 million per filing. While midsized businesses will not be subject to penalties under the Shared Responsibility provisions of the ACA until 2016, those penalties can add up quickly so careful and accurate data collection is vital.
Familiarize yourself with new forms
The IRS will require employers to file two new forms annually, starting in 2016: a 1094-C (the Employer Transmittal to the IRS) and a 1095-C (an Employee Statement).
Completing two forms may seem easy, but gathering the required data from multiple systems to complete them can be a challenge. Whether you’re doing it in-house or outsourcing, start considering how to collect and integrate the information in a secure way.
Figure out whose job it is
With new types of data to compile, new forms to complete and additional deadlines to meet, the ACA has transformed what was once an annual enrollment event into a monthly process of tracking and reporting extensive data points for every employee in a company across multiple departments. To comply with the law, various personnel in Tax, Finance, IT, Legal and HR who never had to share data now need to partner to ensure costly penalties are avoided. According to the ADP Research Institute study “The Affordable Care Act and Employer Confidence,” 64% of midsized companies have multiple people in different roles working together to make ACA decisions.
To help avoid confusion around which team members own responsibility for the new requirements, business owners need to leverage the coordinated expertise of multiple departments, and may want to consider partnering with a third-party provider that has end-to-end human capital management (HCM) infrastructure and ACA compliance expertise. In particular, it’s essential that your IT department can aggregate data and prepare records for multiple health insurance marketplaces as well as the IRS. It’s also important that HR has the tools to translate the key requirements and deadlines to answer all employee questions.
Avoid that Cadillac Tax in 2018
The Excise Tax on High-Cost Plans (also known as the “Cadillac Tax”) will be imposed on employers starting in 2018. The bottom line is that many employers who don’t change their benefits offerings may have to pay up if their group health plans exceed a certain dollar limit. The limit for 2018 is $10,200 for individual coverage and $27,500 for family coverage.
For self-insured plans that exceed these limits, the employer will pay a 40 percent nondeductible excise tax on every dollar above the limit. This penalty can be significant even for a plan that exceeds the limits by only a few hundred dollars per year. So be sure your finance department is keeping a close eye on health care costs to ensure your level of coverage is acceptable and has a plan in place to progressively tackle overspending.
Know the legal limits
Differences in the federal and state health insurance marketplaces may present challenges for businesses with employees in multiple states. Employers with a unionized staff also must consider other specific legal details leading up to this implementation, since union employees can be subject to different rules or exceptions under the ACA and under the terms of their applicable collective bargaining agreement.
Never underestimate the power of preparedness. As companies continue to navigate the ACA, success will be determined by those who play smart and think ahead.
Anish Rajparia is the President of Major Account Services at ADP, a leading global provider of Human Capital Management solutions.