United States: Affordable Care Act Compliance In The Banking Industry

Last Updated: September 5 2019
Article by Tonya M. Rule

While the 2010 Affordable Care Act (ACA) was designed with the potential to make employee health care insurance easier to obtain, cost less and expand coverage, it has compliance features that can cause employers to become subject to harsh penalties. After almost 10 years since becoming law, employers are still sometimes confused or misinformed about their compliance responsibilities related to the ACA.

Tonya Rule, an Eide Bailly partner, has followed the compliance requirements of the ACA since its very beginning. Tonya helps employers understand the complexity in ACA compliance requirements, and when they misstep in those requirements, assists them in reducing or eliminating the resulting penalties.

The following Q&A with Tonya will bring you up to date on what's happening in ACA compliance.

  1. Is there anything regarding compliance with the ACA that is done differently for financial institutions than other organizations?
    No. All Applicable Large Employers (ALE), defined as employers with 50 or more full-time equivalent employees, are required to comply with the ACA.
  2. If my financial institution has fewer than 50 employees, should I be concerned about the ACA?
    Yes, but only if you are member of a larger "controlled" group or you are offering a self-funded plan. If a small employer does offer a self-funded plan, Form 1094-B and 1095-B must be filed with the IRS.
  3. How is full-time equivalent employee status determined? The hours threshold is 120 hours for a full-time employee for ALE determination. Part-time employee hours are added up, then divided by 120 to get to a full-time equivalent employee. It's important to remember that the ALE determination is always done on the previous calendar years' hours. If it is determined that an employer is an ALE and they make an offer of affordable and adequate insurance, that offer needs to be made to substantially all full-time employees to avoid the " pay or play" penalties. Once it is determined that an employer is an ALE, it's important to remember that the hours test for subsequent years is increased to 130 hours a month.
  4. Who within an organization that is subject to the ACA handles the compliance of the ACA?
    There is a misconception that insurance companies will file an entity's ACA compliance forms. However, insurance companies only file the forms they are required to file, not the forms ALE's are required to file. Most of the time, a client's payroll department is tasked with ACA compliance. They need to work closely with the HR Department for managing who is offered, accepts or waives healthcare coverage and whether the coverage is deemed affordable and adequate.
  5. What is the compliance issue that is causing employers the most headaches?
    Adequate documentation is incredibly important in ACA compliance. Confirming that appropriate boxes are checked, social security numbers are valid, and an insurance offer response is essential; these are usually the biggest problem areas. The compliance burden also involves documenting appropriate measurement periods and knowing your number of full-time equivalent employees.
  6. What government agency is responsible for checking a company's compliance with the ACA?
    The Internal Revenue Service has been tasked with this responsibility.
  7. How does the IRS test or verify compliance with the ACA? They compare information provided by an employer with information obtained from the marketplace Exchange. Discrepancies then turn into an IRS 226J letter being sent to employers, which can include very large penalty amounts.

    To reduce discrepancies, employers should be diligent about reviewing their Forms 1094-C and 1095-C prior to submitting them to the IRS. Just one box left unchecked can cause substantial penalties. Each year, we assist employers by reviewing their 1094/1095-C forms. Last year, only 2.4% of client forms that we reviewed were correct, which could lead to many potential penalties being assessed down the road.
  8. Are members of a controlled group of businesses handled separately for compliance with the ACA?
    Yes and No. If an employer is part of a controlled group, all entities in the group are combined as one for the ALE determination. However, each entity is responsible for their own forms and penalties.
  9. Are there particular forms or letters that are being sent out that indicate a problem with ACA compliance?
    Yes, the main notices are:

    IRS Letter 226J: A Letter 226J will be issued to an ALE that offers inadequate or unaffordable insurance, if one of their employees qualifies for a Premium Tax Credit (PTC) through the Exchange.

    IRS Letter 5699: The IRS will send out Letter 5699 if they believe an employer is an ALE and should have, but neglected, to file the appropriate Forms 1094-C or 1095-C.

    IRS Notice 972CG: The IRS started using this Notice with the 2017 filing season. A Notice 972CG is sent out for late or incorrect filing of forms. The most common reason this Notice is sent out is if an employer did not file their Form 1094-C or 1095-C on time or did not file electronically if they were required to do so. Notice 972CG is issued under IRC section 6721 and applies a penalty amount of $260 for each late filed information form. This penalty can add up fast. If an employer files 150 forms late, it is a $39,000 penalty. This penalty increases to $270 per form starting in 2019.

  10. Is there anything new on the horizon that could help companies stay compliant with the ACA?
    Individual Coverage Health Reimbursement Arrangement (ICHRA) is a new health reimbursement arrangement that can be used by employers of any size starting January 1, 2020. An ICHRA is funded solely by the employer and can be used by employees for medical expenses, including individual insurance premiums. Offering an ICHRA will count as Minimum Essential Coverage (MEC) and, if it is deemed affordable, it will satisfy the employer mandate for large employers.

    There are some drawbacks with the ICHRAs. Employers cannot offer an ICHRA and group insurance to the same class of employees. Additionally, employees also must attest to being enrolled in insurance prior to receiving a disbursement from the ICHRA; employers must provide employees with a notice detailing the effect that ICHRAs have on the PTC; and ICHRAs need to be offered on the same terms to the same class of employees (older employees and employees with additional dependents can receive additional money.) So, before an employer sets up an ICHRA, they should seek professional advice.
  11. If a business is just getting started and a lot of the ACA compliance requirements are based on prior year information, how does the new business become or stay compliant with the ACA?
    It is important to know and stay on top of the changing rules and regulations. Gaining clarity around the rules and knowing whether you are an ALE will be important for compliance.

    As stated earlier, the ALE determination is based on a company's prior calendar year hours. However, a new business or a business acquisition, must be looked at in the current year to determine if they are an ALE. If a new business anticipates having 50 or more full-time equivalent employees in their first year of business, they will be considered an ALE and will need to offer affordable and adequate health insurance to avoid the ACA pay or play penalties. Additionally, if an entity acquires another entity, they will be deemed a large employer if the resulting company, or controlled group, has 50 or more full-time equivalent employees. For example, let's say Holding Company (HC) owns Bank (A) and decides to purchase Bank (B) in August of 2019. The HC has 2 FT employees, Bank (A) has 40 FT employees and Bank (B) has 20 FT employees. As of the date of acquisition, the combination of HC, Bank (A) and Bank (B), is an ALE, having 62 FT employees, and must offer affordable and adequate insurance to all their 62 FT employees to avoid the ACA pay or play penalties. Before the acquisition takes place, the HC should make sure that appropriate health insurance is in place for the newly combined group.

How can I make sure I'm in compliance?
The Affordable Care Act affects everyone. Working with an ACA specialist can help you make sense of the complexities, so you can make confident decisions and avoid penalties. Contact Tonya Rule, CPA, Partner-in-Charge of Affordable Care Act Compliance and Consulting with questions or for additional information.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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