Affordable Care Act (ACA) compliance has never been more important.
The IRS continues to hone its compliance practices, with targeted efforts increasingly replacing random audits. And the IRS has announced that good faith efforts are no longer enough to protect employers from ACA penalties for missing or mistaken information on required ACA forms.
Examining your protocols in the following three areas can help you stay compliant and lower your odds of an IRS audit:
- Documentation
- Administrative processes
- Communications
Documentation
Your ACA compliance efforts should begin with rigorous documentation.
- Maintain detailed records throughout the year.
- Document your reasoning.
- Ensure documents are readily available.
- Meet filing and distribution deadlines.
The compliance company Health e(fx) notes that many companies wait until the end of the year to manage compliance. At that point, it may be too late to fix any errors. Putting processes in place at the start can improve your documentation and help you avoid audits and penalties.
Document all data relevant to ACA compliance, including:
- Plan eligibility, participation and amendments
- Employee classifications
- Employee work hours
- Plan participant communications
- Recordkeeping procedures
- Service provider contracts
In addition, keep records of the reasoning behind your decisions. For example, if you categorize some employees as part-time or seasonal, document why you selected those classifications and how your decisions comply with ACA regulations.
Make sure your documents are easily accessible in case of an IRS inquiry. Audits typically come with a deadline, and governing agencies want to see that your recordkeeping processes are responsive. The benefits of robust recordkeeping are twofold:
- You are less likely to be audited in the first place.
- If you are audited, you are more likely to respond successfully and avoid penalties.
To avoid triggering an audit, file all forms accurately and on time. This includes:
- Delivering applicable Forms 1095-B or 1095-C to employees by March 2
- Sending applicable Forms 1094-B, 1095-B, 1094-C or 1095-C to the IRS by February 28 (paper filing) or March 31 (electronic filing)
Ensure accuracy on all forms. Vague or illegible answers regarding information like minimum essential coverage and employee head counts may raise suspicions. By demonstrating a clear understanding of ACA rules for employee classifications, hours worked, and requirements for quality and affordable health coverage, you can further reduce your risk of an audit.
Administrative processes
- Evaluate administrative processes related to ACA regulations.
- Be transparent about errors and correct them immediately.
Another way to lower the odds of an audit is to regularly review your internal and external administrative processes related to ACA compliance.
Administrative processes include:
- Determining whether your group health plan is grandfathered
- Ensuring your plan is compliant with waiting periods, coverage for essential health benefits and preexisting conditions, out-of-pocket costs, etc.
- Evaluating the compliance of health reimbursement arrangements, health flexible spending accounts and cafeteria plans
- Providing plan participants with a summary of benefits and coverage, notice of plan changes and other required information
- Meeting plan nondiscrimination requirements
You should keep copies of and regularly review contracts with service providers to make sure they are following applicable regulations. Even if they handle your ACA compliance, you are ultimately responsible.
Errors increase the likelihood of being audited. If you find an error:
- Be transparent about what occurred.
- Correct the error right away.
- Document how the error was discovered and resolved.
If you discover an error, document the updates you made to your processes to ensure that it is not repeated.
Communications
- Be responsive to employee concerns.
- Engage in media relations when necessary.
When employees file a complaint, the IRS pays attention. Responding to employee questions and concerns is another way to reduce the likelihood of an audit.
When employees raise concerns about issues like work hours, full-time versus part-time classifications and plan eligibility, take them seriously and respond to every inquiry. Keep a paper trail of your communications and resolutions.
News reports of unethical business practices or compliance protocols can also put you on the radar of regulatory agencies. Stay on top of media coverage. Work with your internal team or service provider to demonstrate responsiveness, refute inaccurate allegations and communicate resolutions for outstanding issues.
More information
For more information on ACA compliance, talk with your benefits adviser. They can help you improve your processes related to ACA documentation, administration and communication. They can also help you examine and select service providers to ensure your plan remains compliant with the ACA and out of the sights of the IRS.
Reach out to our Employee Benefits team to talk about ACA Compliance.
This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem. Please refer to your policy contract for any specific information or questions on applicability of coverage.
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