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The Affordable Care Act (ACA) has transformed how employers offer and deliver healthcare to their employees. Whether you’re an established employer who’s been tackling the ACA’s myriad regulations since Day One, or a newer employer navigating them now, there are two elements you can’t overlook. First, compliance isn’t an option, it’s a must. Second, the ACA isn’t simple — and there’s a lot to know.

The risks of ignoring or getting ACA regulations wrong include potentially costly penalties, as well as tarnishing your carefully built employer brand. The good news is that there are plenty of resources in place for getting it right, from information to experts to technology. Read on for some tips on the best practices and strategies employers need to know to comply with the ACA.

The Affordable Care Act Explained: A Comprehensive Mandate 

Signed into law in March of 2010 by President Obama, the Affordable Care Act established a mandate that changed the nature of employment, scaffolding a platform of healthcare offerings — and plenty of risks around non-compliance.

Size Matters

The bigger an organization, the more complex healthcare offerings are going to be, in general. The same is true with ACA compliance risks. But smaller organizations aren’t exempt. While not required to offer health coverage for their employees, if they do offer coverage, it must conform to ACA standards. For smaller businesses trying to attract and retain talent by offering benefits comparable to larger competitors, staying in compliance is critical.

1. Smaller Organizations

The ACA defines smaller organizations as those with less than 50 full-time or full-time equivalent employees. According to U.S. Census Bureau data published by J. P. Morgan Chase, nearly half of U.S. employees — 47.3% — work for small businesses. Most smaller businesses are very small: 88.1% have under 20 employees.

Smaller organizations may be eligible to offer their employees health insurance through the Small Business Health Options Program (SHOP) Marketplace. This marketplace provides a platform for small employers to explore and purchase health insurance plans for their employees, with the ability to easily compare plans, access enrollment tools, and potentially qualify for small business tax credits.

If an organization has less than 25 full-time equivalent employees, and the sum total of average annual wages falls below a certain threshold (which changes year to year), it may be eligible for tax credits under the Small Business Health Care Tax Credit to help offset the cost of providing health insurance coverage to employees.

2. Larger Organizations

Any employer with 50 or more full-time or full-time equivalent employees is considered an applicable large employer (ALE) according to the Affordable Care Act. ALEs need to offer at least basic health care coverage — known as minimum essential coverage (MEC). They also need to meet the ACA’s Employer Shared Responsibility Provisions, which mandate that health insurance coverage is offered to at least 95% of the organization’s full-time employees and their dependents.

The ACA describes mandated coverage as “affordable” and “adequate” — terms that can’t be ignored. Employers are prohibited from placing the burden of excessive costs onto employees (as in unbalanced cost-sharing).

Affordability criteria apply to all employers: essentially, it’s correlated to an employee’s required contribution for coverage, which is no more than 9.12% of that employee’s household income in 2023. As for adequate coverage, it must conform to ACA standards and include essential health benefits.

Timely Reporting and the Right Forms

Employers face a range of reporting requirements, including accurate documentation, timely, careful reporting of employee information, and filing by the deadline with the IRS and other state agencies. Most organizations will want to work with ACA experts to make sure they’re complying with the ACA’s strict and complex reporting requirements. There are layers of information to address correctly, along with periodic changes to adjust to as the ACA is updated.

While small employers don’t have to file the same IRS forms as large employers (see below for those), they may be required to provide a Summary of Benefits and Coverage (SBC) to their employees, as well as other information. Again, it’s important to stay up to date to meet transparency requirements, avoid penalties, and receive certain tax credits.

As for large employers, along with various forms for state agencies, they need to file:

• 1095-C form with information on what the coverage offers, employee eligibility, and coverage affordability;

• 1094-C form that summarizes information on the 1095-C, and includes an overview of compliance with ACA requirements as well as the number of employees covered;

• 1095-B form for health insurance providers and self-insured providers, which includes information on people covered under their health plans, duration of coverage, period of coverage, and other details.

These forms are usually filed at the end of February or March (if filed digitally) of the next calendar year for the year before. That means the right forms have to be provided to employees by January 31. (As with all things IRS, best not be late. Read on…)

Employer Penalties and Risks 

Depending on the size of your organization and the level of non-compliance with the ACA, you could be looking at substantial penalties.

Calculate your potential risk with ADP’s ACA Compliance calculator.

• For smaller organizations, the penalties are understandably smaller in scale. But there are consequences if, for instance, they fail to provide affordable coverage, or if an employee qualifies for a premium tax credit through the Health Insurance Marketplace — since they didn’t have access to affordable health care coverage through their employer.

• For large organizations, as of 2023, an ALE that doesn’t meet the 95% compliance requirements for full-time or full-time equivalent employees and their dependents could face a 4980H(a) penalty. This is a yearly penalty of $2,880 (or $240 for each month) per full-time employee, minus the first 30 employees. An ALE that provides unaffordable employer-sponsored coverage, provides coverage that doesn’t meet minimum value requirements, or has one or more full-time employees who receive subsidized coverage through the exchange could face a 4980H(b) penalty. This is a yearly penalty of $4,320 divided by 12 for each full-time employee who receives subsidized coverage through an exchange in a month.

Staying in Compliance: 6 Best Practices

Ensuring compliance with the ACA takes a multi-pronged approach, from staying on top of eligibility information, to meticulous documentation, to leaning on an expert team, to leveraging the best technology. Consider these six best practices as part of your ACA strategy:

1. Dive into Employee Eligibility

This isn’t a guessing game. Employee eligibility criteria involve multiple factors, including hours worked and full-time or part-time status. Full-time means those working at least 30 hours a week or 130 hours a month, on average. Full-time equivalency looks at the combined hours worked by part-time employees.

2. Manage Affordability

Stay on top of affordability requirements as they change year to year, and make sure you understand the ACA’s definition of affordability. Employers should also regularly review their coverage to make sure it’s still within affordability parameters, since healthcare costs are rarely fixed. Be proactive at monitoring costs so you don’t wind up in noncompliance.

3. Maintain Documentation

Create a system for keeping all documentation related to ACA. Retain all records on eligibility, coverage offers and any changes made to health plans. Keep all documentation on affordability calculations and credits, as well as communication with employees.

Retain all reports and forms, and include details about when data was filed, what data was filed, and other pertinent information. Whatever format you use — such as electronic folders or Cloud-based storage — make sure it’s secure, accessible, and permits easy, fast retrieval. Establish document retention protocols that meet industry best practices as well as your organization’s own internal practices.

4. Conduct Continuous, Careful Reporting

Timely and accurate reporting of required information is crucial for ACA compliance. Stay updated on reporting deadlines and be ready to provide the necessary documentation in compliance with ACA regulations. Another trigger for penalties is not filing accurate or on-time information returns with the IRS and applicable state agencies. A shoddy reporting system could be expensive.

 5. Build a Team You Trust

A thorough compliance strategy team can provide the critical support employers need to navigate the ACA’s complexities. It ensures that a business can benefit from a breadth of expertise, establish a coordinated approach, and stay on top of regulatory changes and developments.

The presence of an ACA team can also encourage compliance across multiple tiers and locations of a larger organization, establishing a single source of truth, as it were, along with a consistent, timely, organized strategy. Adherence isn’t always a simple matter. As with all complex regulations, there may be gray areas and there will likely be questions. How effectively and quickly these can be addressed could make all the difference when it comes to avoiding penalties.

6. Harness the Power of a Digital Platform

Combining a team that understands ACA compliance with digital tools that streamline ACA compliance processes is a win for any organization. It enables employers to focus on core business operations without losing sleep over ACA compliance risks. A robust platform designed to simplify and optimize at the same time can offer a range of functions covering everything from reporting and forms access to data hygiene and updates. It’s a highly effective approach to mitigating risk and minimizing compliance gaps.

What to look for in an ACA compliance platform? Look for a system packed with the right features. Look for automation that makes it easy to generate ACA forms with accuracy — that, alone, can be a game changer. Make sure the platform offers integration and data management between HR, benefits administration, and ACA reporting tools, as well as a central, safe location for records and data management.

Real-time monitoring and reporting, easy-to-use dashboards and analytics can provide of-the-moment status and progress, and support timely compliance. Tools for calculating potential risks and penalties can shed light on questions quickly and support better decision-making. As with any modern platform, an array of integrated features means an employer is well-supported. In this case, integration is essentially table stakes.

If You Get a Penalty Notice

The most important first step to take if you receive a penalty notice is to respond quickly. Then, reach out to your team. And if you don’t have an ACA team of HR professionals or dedicated, trusted ACA experts, this is when you’ll need it.

Lean on your team for guidance on how to best establish a plan of action. Focus on responding with thorough due diligence and correct documentation. Make sure the reasons for the noncompliance finding are clear, and carefully address and resolve each requirement detailed in the penalty notice with your team’s support.

The Affordable Care Act: New Landscape, New Complexities, New Changes

Like many transformative pieces of legislation, the ACA is anything but static. It’s a continually iterating set of requirements and standards. Established with the best of intentions, it undoubtedly raised the bar for what employers offer in terms of healthcare to their employees, as well as how much time, care, and effort goes into administration.

At the same time, modern organizations are dealing with the pressure to stay competitive, stay relevant, attract and retain strong talent, and grow in the new world of work. Healthcare as an industry has also changed — and its evolution continues.

The keys to navigating the ACA in this environment are adhering to best practices, reaching out for external expertise, and leveraging the best digital solutions available. It’s this combination of resources that will most effectively streamline compliance efforts, reduce risks, and provide the most comprehensive and affordable healthcare to your workforce.

Learn more about compliance with The Affordable Care Act from ADP’s ACA experts in this on-demand webinar: “The ACA and Health Care Reform: Federal and State Developments.”