How the ACA is Impacting Company Budgets in 2015

The Congressional Budget Office (CBO) expects to collect $313B from employer penalties over the next decade, with $34B of that coming from “Cadillac Tax” penalties in 2025 alone. To no surprise: one of the primary objectives of the Affordable Care Act has been to shift the burden of rising healthcare costs onto Applicable Large Employers (ALE). Preparing for the financial implications of the new regulation starts with understanding the overt and covert ways that the ACA impacts company spending.

To assist companies in fiscally planning for the impacts of the Affordable Care Act, we recommend considering three areas of potential cost and saving opportunities.

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1. Cost of Potential Penalties

As one of the primary funding methods of the ACA, the CBO projected $7B in subsection (a) and (b) penalties of the employer shared responsibility mandate in 2016, doubling in the following 3 years, and tripling by 2025. These penalties can be triggered when an ALE full-time employee (FTE) goes to the state or federal exchange and receives a subsidy.

Subsection (a) Penalty, AKA the sledgehammer penalty, penalizes employers $2,000 per FTE should they fail to offer Minimum Essential Coverage (MEC) to 70% of their FTEs in year 2015, and 95% of employees in subsequent years. Employer’s will be able to subtract 80 from the total number of FTEs not offered coverage in reporting year one, and subtract 30every year thereafter. This means that if an employer has 100 FTEs, and only offers 69 of them MEC in 2015, then that employer is subject to the sledgehammer penalty, which in this case, amounts to $40,000. (100FTEs-80=20*$2,000=$40,000).

Subsection (b) Penalty, AKA the tack hammer penalty, penalizes employers who fail to offer coverage that is affordable or fails the the minimum value test. Employers are penalized $3,000 for each FTE who receives a subsidy from the state or federal exchange after being offered coverage that was unaffordable of did not provide minimum value. Of note, the tack hammer penalty will never exceed the maximum payout of the sledgehammer penalty.

Furthermore, administrative filing penalties can amount up to $100 per filing error. For an employer with 100 FTEs, this means potentially facing a $10,000 fine for every filing delinquency. Maximum employer payout for administrative penalties caps at $1.5M. While the IRS communicates leniency toward errors in form completion for employers who make a “good faith effort” in year one, the leniency does not extend over delinquent forms.

2. Increased Employee Benefits Administration Costs

The stipulations on coverage notifications, tracking coverage waivers, timelines, and requirements for “audit-worthy” documentation will undoubtedly increase the administrative workload of benefits administrators, payroll specialists, and HR professionals, especially those relying on paper-based enrollment and time tracking.

Too often, employers make the mistake of viewing Affordable Care Act compliance as an event, rather than an ongoing process. Under the ACA, there are new actions taking place every pay period. These new administrative tasks impact administrative support staff in all functional areas of an organization’s total workforce management. While repetitive and clerical in nature, these reoccurring actions demand new policies and a new series of checks and balances as payroll, HR, employee benefits, and time and labor data converge to facilitate ACA testing.

Beyond the administrative expenses, there are the clear costs of new enrollments. On one hand, organizations who leverage healthcare plans to attract and retain talent may only experience the impact of the ACA when variable-hour employees become benefits eligible after their first measurement period.

On the other hand, those companies that employ full-time laborers to whom they have not traditionally offered coverage may start to weigh the cost of penalty vs. enrollment vs. reducing hours.

Related Blog: What to Look For When Selecting an ACA Software Solution

3. Cost of ACA Compliance Software

Regardless of which aforementioned category an employer falls into, all ALEs are required to conduct ongoing ACA data-tracking in order to conduct annual IRS reporting. Collecting the necessary data, testing for compliance, and then aggregating the results into the IRS Affordable Care Act forms is an involved process (we’ve addressed each of these actions in earlier blogs).

Final ACA reporting guidance requires employers submitting more than 250 individual coverage return forms to file electronically, making manual in-house solutions virtually unfeasible. To date, the only means of completing this final electronic filing step is through electronic applications. The IRS has developed “Publication 5165 Affordable Care Act Information Returns Guide for Software Developers and Transmitters” to help the private market develop software solutions to fill this gap. Over the past year, the market has begun developing ACA software in response to the rising need for compliance solutions, ranging from end-to-end completely automated ACA products to ones that focus on select data gathering, testing, and reporting functions. From a budgetary perspective, the cost of these ACA software solutions may vary on employee headcount and hourly consultation fees.

For more information, consider attending one of Benetech’s upcoming webinars, or subscribe to our blog for continued ACA and business efficiency updates!