ACA Compliance - Answering The Top Questions Businesses Must Know

The Affordable Care Act (ACA) was signed into law in 2010 to transform the healthcare system in the US by giving everyone access to reasonably priced care. Since then, the Act has evolved, as has its impact on businesses. There are several things employers need to do to ensure ACA compliance today, and keeping track of it all can be complicated and time-consuming. However, understanding what’s involved to maintain compliance is the first step to getting it right.

To help you better understand what it takes to be compliant with the Affordable Care Act, we’ll answer common questions about ACA compliance, including what businesses must comply, the requirements, and penalties you could face if you are not compliant. After reading this, you’ll know the steps to take to stay compliant with the ACA requirements no matter the size of your business.

What is ACA compliance?

ACA compliance means meeting the requirements of the Affordable Care Act (ACA), the name of the comprehensive healthcare reform law and its amendments that address health insurance coverage, health care costs, and preventive care. It has three primary goals:

1. Make affordable health insurance available to more people. The law provides consumers with subsidies (“premium tax credits”) that lower costs for households with incomes between 100% and 400% of the federal poverty level (FPL). 
2. Expand the Medicaid program to cover all adults with income below 138% of the FPL.
3. Support innovative medical care delivery methods designed to lower the costs of health care generally.

When it comes to being ACA compliant, certain businesses must comply with the law, and there are also specific employees who must be offered health insurance, which we’ll discuss next.

Who must be ACA compliant?

Most of the ACA requirements for employers apply to businesses with 50 or more full-time equivalent employees who sponsor group health plans. However, if you have less than 50 employees, you may still have some responsibilities as well. We’ll detail the requirements for employers of all sizes next.

What are ACA compliance requirements for employers?

As we mentioned previously, your responsibilities depend on the number of employees you have.

Large Employer (50 or more employees)

Some provisions of the ACA only apply to large employers. These include:

1. Provide Compliant Health Insurance Coverage: As a large employer, under what’s known as the employer mandate, you’re required to offer health insurance to at least 95% of your full-time workers that’s affordable and provides minimum value or you may have to pay penalties, which we’ll discuss in a bit.
2. Affordable: In general, coverage for 2023 is deemed affordable if the employee’s portion doesn’t exceed 9.12% of their household income, down from 9.61% in 2022.
3. Minimum Value: The insurance must cover at least 60% of covered healthcare expenses and provides substantial coverage of inpatient and physician services.
4. Satisfy Reporting Requirements: Each year, you’ll need to provide IRS Forms 1094-C and 1095-C. These documents contain information about your employees’ health coverage to determine whether you pass the employer mandate. To comply with the requirement, you must distribute the 1095-C to your employees by March 2 (employees do not require them to file their taxes). The 1094-C, which is the transmittal page, and the 1095-Cs need to be filed with the IRS by February 28 if you send your return by mail or March 31 if you file electronically. Any employer that has more than 250 forms is required to file electronically.
5. Distribute Notices: You’ll need to provide several documents to new and existing employees:
6. Notice of Marketplace Coverage Options: This is a general written notice with information about the health insurance marketplace. It must be provided to every new employee within 14 days of their start date. Since it’s not a required annual notice, employees only need to receive it once upon hire.
7. Summary of Benefits Coverage (SBC): If your carrier or third-party administrator doesn’t handle this, you’ll need to provide this notice to employees and their beneficiaries during the open enrollment period and when requested.
8. Notice of Material Modification: If you have made a material modification that would affect the content of the SBC, you’ll need to provide this notice at least 60 days before the change takes effect.
9. Pay employer shared responsibility (ESR) payment: If you don’t offer minimum essential coverage that is affordable and/or provides minimum value, you may face possible penalties and be responsible for making an employer shared responsibility payment (ESRP) to the IRS. You could face one of two possible ESRP penalties: 
10. You don’t offer coverage: A penalty for not offering minimum essential coverage to at least 95% of your full-time employees AND at least one full-time employee receives the premium tax credit for purchasing coverage through the health insurance marketplace. This payment is equal to $2,880 for 2023 for each employee, with the first 30 employees excluded.
11. You do offer coverage: A penalty for each employee who receives the premium tax credit for purchasing coverage through the marketplace even if you offer minimum essential coverage to at least 95% of your employees because the coverage is either not affordable, doesn’t provide minimum value, or the employee is not one of those offered the coverage. This penalty is $4,320 for 2023 for each employee who receives the premium tax credit.

Small Employer (less than 50 employees)

You’re not required to offer your employees health insurance if you’re a small business, but to ensure ACA compliance you’ll need to provide newly hired employees the Notice of Marketplace Coverage Options.

If you decide to provide health insurance, the plans must meet the standards of minimum essential health coverage and you must distribute the required notices. And while you don’t need to file Form 1094-C and 1095-C, if you provide self-insured group coverage, you must file an annual return – Form 1095-B and 1094-B transmittal form – for each covered employee.

Any Sized Employer

The ACA requires employers that offer health insurance to take some additional actions regardless of size. These include:

• W-2 reporting: If you offer health insurance coverage, you’ll need to report the value of the coverage you provide to employees on their W-2 if you file 250 or more W-2s
• PCORI Fee: If you’re self-insured, you may have to pay the Patient-Centered Outcomes Research Institute fee directly to the IRS.
• Medical loss ratio rebates: If you receive a MLR from an insurance company, you must distribute rebates to eligible enrollees as appropriate (this isn’t required for self-insured plans).

What are the ACA penalties for non-compliance?

Depending on the violation, you can be assessed costly penalties for ACA non-compliance. For example, there’s no penalty for failing to distribute the marketplace notice to new employees. However, if you don’t distribute the SBC, you can be fined up to $1,264 per participant. Additionally, if you don’t provide a Notice of Material Modification, you can be fined $110 per day.

As we discussed, large employers may also face an ESR payment for not offering health coverage that’s affordable and offers minimum value.

Finally, if you don’t comply with the annual reporting rules and provide late or incorrect forms to employees or the IRS, you can be fined $50 per return if they’re not more than 30 days late to up to $290 per return if they’re provided after August 1, 2023.

How to Best Maintain ACA Compliance

As you can see, there’s a lot to stay on top of to ensure you stay in compliance with the Affordable Care Act and avoid ACA penalties. If you don’t have the resources or expertise in house to manage the responsibilities, you may want to consider working with a health insurance broker that specializes in compliance with laws like the ACA, ERISA, HIPAA, and others. 

If you decide to go this route, read our next article on the top factors to consider when selecting the right health insurance broker. As you’ll see, a broker’s knowledge and ability to help you understand the legal requirements for your plans is one of the things you’ll want to think about as you evaluate your options. 

Editor’s Note: This blog was originally published in March of 2022 and was updated in January of 2023 for accuracy and to be more comprehensive.