Employers’ Denial of ACA Impact Could Cost Them a Fortune

In all of my dealings with employers on Affordable Care Act (ACA) matters since 2010, I’ve reached a few reasonably sound conclusions.  Here’s one: employers are faking it!  They are doing so when it comes to how IRS controlled group rules influence the ACA’s “Applicable Large Employer” (ALE) determination.  It is this determination that serves as a foundational component of the ACA’s Employer Shared Responsibility (“pay or play”) mandate.  To recap, employers of 50 or more full-time equivalent employees (100 or more for 2015) are expected to offer ACA compliant coverage (play) or pay assessable payments.  The amounts of these payments are based on factors that include the number of full-time employees and how many of them qualify for Exchange-based premium subsidies.

I know this because when they ask, and I explain, how to determine whether they are considered an ALE, they react in one of three ways:

  • They nod and walk away – never to be heard from again.
  • They say, “Oh, then I’m good, because we had to look at that when we set up our retirement plan in 1999.”
  • They don’t believe what they are being told and contact someone else for a second opinion.

It’s only been in a handful of occasions where I’ve seen our employer clients request a bona fide assessment of the group and its membership.  What this tells me is that while many employers haven’t ignored the need to do their ACA/ALE homework, they have stopped short of double checking their work.

That may have been all well and good for the initial pass at ACA compliance.  However, now looming in early 2016 is the ACA’s new reporting requirements.  The draft forms issued by the IRS signal the employer’s need to have a mastery level understanding of its controlled groups – to the extent they can even report to the member level.  One form asks the question: “Is ALE Member a member of an Aggregated ALE Group?”  It’s a simple answer: yes or no?  Much less simple is whether or not the employer will be able to pull the data that supports this answer, as the IRS will come to expect.

Employers have many other considerations to make when it comes to this new reporting requirement.  However, at its core, the reporting is intended to mechanize much of what the ACA requires when it comes to who has coverage, who is eligible for coverage, who is being subsidized by the taxpayers for the coverage they have, and why.  Employers, whether ALEs or not (and whether they like it or not), are part of the “why” factor.  The reason?  Because employers of all sizes directly influence why a portion of the population is granted access to “affordable” coverage by way of federal subsidies.

So if you faked it the first time around when it comes to your ALE determination, now is the time to get serious and do the double check.  Contact your trusted advisors and have them run the appropriate test.  Document it so you can back up your ALE and group health coverage positions.  With penalties that can run up to $1.5 million per year, the price to pay for faking it could be huge.