ACA 2023 Compliance Reporting

From processing new benefits to coming up on the final chance to reach annual goals, the fourth quarter of every year can be hectic for everyone, especially those who work in HR and employee benefits. One thing employers can’t afford to overlook is scheduling time to review their Affordable Care Act (ACA) compliance reporting due in the first quarter of 2023.

In 2010, the Obama Administration and Congress passed the Affordable Care Act. This legislation sought to change the face of American healthcare by requiring affordable health insurance for more people. To ensure compliance, ACA violators face a variety of steep penalties. The type of penalty depends on coverage availability or whether it is affordable and meets a minimum value.

Employers qualified as ALE (Applicable Large Employer) must maintain compliance under the Affordable Care Act. In other words, these employers must offer affordable benefits that meet Minimum Essential Coverage (MEC) for eligible employees.

Compliance Reporting Reminders

The Society of Human Resource Management (SHRM) has five helpful reminders you can share with employers on compliance reporting.

1. Lower Affordability Threshold

For 2022, employers used 9.61% as the affordability threshold for the employee’s required share of the lowest tier self-only plan premium. For 2023, that threshold drops to 9.12%. As you finalize your 2023 group plans, ensure that plans meet the new requirement and communicate the change accordingly.

2. Affordability Safe Harbors

Employers must consider each employee’s household income to determine the affordability threshold. However, since employers are unable to know that figure for sure, you can use one of three Safe Harbor calculations:

  • W-2 Safe Harbor – Employers can use the employee’s reported wages from Box 1 of their IRS Form W-2.
  • Rate of Pay Safe Harbor – Employers can use an employee’s rate of income at the beginning of the coverage period and adjust for hourly employees if they work fewer hours during that same period.
  • Federal Poverty Line Safe Harbor – Employers can consider coverage affordable if the employee’s monthly premium share is not more than 9.61% (annually adjusted percentage for 2022) of the federal poverty line for a single individual, divided by 12.

3. Employer Shared Responsibility Penalty (ESRP) Amounts Rising

Penalties for failing to provide the required coverage, or providing coverage that does not meet affordability/minimum value as required, are adjusted annually for inflation. For 2023 reporting, those penalties are increasing as follows:

  • ALEs who fail to provide health insurance coverage to at least 95 percent of full-time employees and their dependents face a penalty of $2,880 ($240/month) per employee
  • ALEs who fail to provide coverage that meets affordability and MEC requirements face a penalty of $4,320 ($360/month) per employee

4. Form 1094-C/1095-C Deadlines

ALEs must report certain group plan information annually so the IRS can determine mandate compliance. ALE employers must provide statements to employees no later than March 2, 2023. The employers must also file corresponding reports for employee situations no later than February 28, 2023 for paper filing or March 31, 2023 for electronic filing.

5. Current Draft ACA Reporting Forms

Self-funded plan sponsors who do not have more than 50 full or full-time equivalent employees will use Forms 1094-B and 1095-B. Those with more than 50 will use Forms 1094-C and 1095-C. These forms do not contain material additions from the prior year. Further, they no longer reference the canceled individual mandate penalties.

New to ALE Status

Compliance with requirements may be challenging to comprehend, especially for companies who qualify as ALEs for the first time. New ALEs may want to consult with their broker or qualified benefits counsel.

ICHRAs, QSEHRAs, and How They Fit In

Employers (especially smaller ones) may struggle to afford group health coverage that meets affordability and MEC requirements. However, there are options available, including ICHRAs and QSEHRAs.

  • Qualified Small Employer Health Reimbursement Arrangements (QSEHRA) – QSEHRAs are an excellent option for employers with 50 or fewer full- or full-time equivalent employees. Each employer sets the amount it will reimburse employees for individual health coverage premiums. Those funds are not taxable to the employee. Additional information is available here.
  • Individual Coverage Health Reimbursement Arrangement (ICHRA) – After the enactment of ACA, HRAs were no longer able to cover premium payments to employees for individual healthcare coverage. As the first alternative, QSEHRAs enabled smaller employers to help employees with their healthcare costs. Then in 2019, employers were given another option with ICHRAs. This account type is an option for employers of any size, provided the employer does not give employees a choice between a group plan and individual coverage. Employers can use ICHRAs to satisfy ACA requirements as long as the individual coverage purchased by employees meets MEC requirements.