Annual Employee Benefits Compliance Responsibilities On January 1st

December 5, 2023 | Source: Word & Brown, by Paul Roberts

The start of each year marks an important date for employers as they face annual compliance responsibilities related to their health plans, the Affordable Care Act (ACA), and COBRA. Staying on top of these regulations is crucial for compliance and to avoid significant non-compliance penalties. Benefits advisors and insurance brokers play a vital role in helping employers navigate these complexities and ensure compliance.

ACA Compliance: Determining Applicable Large Employer (ALE) Status
Every year, employers must assess whether they qualify as an “Applicable Large Employer” (ALE) under the ACA. The ALE status is crucial as it determines the employer’s obligations under the ACA’s employer mandate and related IRS reporting requirements.

ALE Responsibilities
ALEs are required to offer full-time (FT) employees affordable group coverage, known as “Minimum Essential Coverage” (MEC), that meets minimum value thresholds. A minimum value plan pays, on average, at least 60% of covered benefits. Additionally, ALEs must extend group coverage to FT employees’ dependent children up to the age of 26.

ALE Determination
ALE status is determined annually on or around January 1^st, based on the average size of the employer’s workforce for all 12 months of the preceding calendar year. This calculation involves counting both FT and full-time equivalent (FTE) employees. FTEs are fractions of part time employees who, when hours of service are combined, equal the equivalent of one more FT employees.

Calculation Steps

1. For each month of the preceding (2023) calendar year, count the number of FT and FTE employees.
2. Average all twelve months’ results to determine the average workforce size of the year.
3. Determine ALE status:
   • If the average workforce size is 50 or more FT+FTE, the employer is an ALE in 2024.  It must comply with the ACA’s employer mandate for that full new calendar year and report on its compliance with the law at the conclusion of that calendar year.
   • If the average workforce size falls below 50 FT+FTE, the employer is not an ALE in 2024. It is not subject to the ACA’s employer mandate for that calendar year and does not have any ACA reporting responsibility in 2025.

ALE Status Duration
An ALE’s status remains in effect for the entire calendar year, regardless of changes in workforce size during the calendar year. ALE status can only change on January 1^st.

Employee Classification
The ACA defines a FT employee as someone who averages at least 30 hours of service per week or 130 hours of service per month. FTEs are calculated by totaling the hours of service provided by part-time employees each month (using a maximum of 120 hours for each part-time employee, even if they worked more), and dividing the total by 120.

Resources for ALE Determination
Word & Brown provides valuable resources insurance brokers can use to help their employer clients accurately assess their ALE status and fulfil their ACA compliance obligations, including an ACA Group Size calculator, a Full Time Equivalent (FTE) calculator, and other employee count references on the WBCompliance Wiki page.

ACA Compliance: Reporting Responsibilities for Employers Considered ALEs in 2023
Employers who are/were considered ALEs in 2023, based on last year’s calculation, must now fulfill their ACA reporting obligations and report on compliance for the 2023 calendar year. This involves providing information to the IRS and to all employees employed full time for at least one full calendar month of 2023.

ALEs are required to file IRS Forms 1094-C and 1095-C to report on the health insurance coverage offered to their FT-eligible employees during 2023. Form 1094-C summarizes the employer’s overall coverage offerings at a macro level, while Form 1095-C provides detailed information about each employee’s offer of coverage, affordability criterion, and more.

Filing Deadlines

• Form 1095-C: Furnish copies of this form to all persons employed full time for at least one calendar month in 2023 by March 1, 2024.
• Forms 1094-C and 1095-C: File copies of Forms 1094-C and 1095-C electronically with the IRS on or before April 1, 2024.

Electronic Filing Requirement
All ALEs, regardless of size, are now required to file Forms 1094 and 1095 electronically. Previously, employers with fewer than 250 returns could file paper copies, but this option has been eliminated. Employers filing more than 10 returns (including Forms 1094, 1095, 1099 and W-2) are required to file electronically in 2024.

Resources for ACA reporting
Word & Brown is hosting an annual ACA IRS reporting series for insurance brokers and their ALE clients, taking place in early 2024. Stay tuned for more information.

In the meantime, refer to the WBCompliance Wiki for more information on employer reporting responsibilities and submission deadlines, employer reporting penalties, and more.

COBRA Group Size Determination
Employers that sponsor group health plans must determine their COBRA responsibilities and compliance category annually on or around January 1^st. This involves evaluating the employer’s workforce size under COBRA law, which is similar to, but distinct from, the ACA’s ALE determination.

Federal COBRA Status Determination
Employers that have employed at least 20 employees on 50% or more of the typical working days of 2023 are subject to federal COBRA law for all of 2024. If they sponsor group health plans, they must offer COBRA continuation coverage to eligible COBRA participants and their eligible family members upon experiencing a qualifying life event.

Mini-COBRA in California: Cal-COBRA
Employers with group health plans established in California that have employed fewer than 20 employees on 50% or more of the typical working days in the preceding 2023 calendar year are subject to Cal-COBRA law in 2024. Cal-COBRA is a state-level law that provides similar continuation coverage rights to those under federal COBRA, with different administration and compliance requirements. Note, however, that self-funded group plans are not subject to Cal-COBRA – but are subject to federal COBRA.

No Mini-COBRA in Nevada
Nevada does not have a state COBRA continuation law. Therefore, employers with fewer than 20 employees, based on 50% or more of the typical working days in the preceding calendar year in Nevada, are not subject to COBRA law. However, federal COBRA law still applies in Nevada for employers with more than 20 employees.

Counting Employees for COBRA Compliance
When determining COBRA group size, both FT and part-time (PT) employees are counted. Each PT employee counts as a fraction of a FT employee. To calculate PT employees as FTEs in COBRA, the employer should total all PT employees’ hours of service and divide it by whatever the organization considers to be full-time.

Importance of Accurate Determination
Accurate COBRA determination is crucial as it affects benefits, administrative billing charges/fees, timeframes, and more associated with federal COBRA and Cal-COBRA. Employers should carefully evaluate their workforce size and make the determination accurately at the beginning of the year.

Notification of COBRA Status Changes
Any changes to COBRA status/category should be promptly communicated to the employer’s fully insured carrier(s), self-funded health plan administrators, and applicable COBRA Third Party Administrators (TPAs). This ensures that COBRA continuation coverage is offered to eligible individuals and that the employer remains compliant with all applicable laws and regulations.

COBRA Status Duration
Just like the ACA calculation, the employer remains in its COBRA category for the entire calendar year, regardless of future fluctuations in workforce size. This allows for consistent administration of COBRA continuation coverage throughout the year.

IRS Controlled Groups
In determining group size for compliance with ACA and COBRA, employers must consider common ownership and the concept of “controlled groups.” Controlled groups occur when multiple businesses are treated as a single entity for tax purposes, even if they have separate legal structures, tax IDs, employees, locations, and even business sectors and objectives. If an employer is part of a controlled group, the employees of all the businesses within the group are combined for purposes of determining group size. This can impact the employer’s ALE status and COBRA obligations.

The Internal Revenue Code (IRC) Section 414, subparagraphs (b), (c), (m), and (o), outline the rules for determining controlled groups. These rules consider factors such as common ownership, shared business interests, and the ability to control or influence the management of other entities.

Consulting a tax professional is crucial to accurately determine whether an employer is part of a controlled group. These professionals have the expertise to assess the ownership structure, business relationships, and the applicability of these complex IRS rules (and necessary errors and omissions coverage to cover tax-related missteps).

California’s Individual Mandate Remains in Effect
In addition to federal regulations, California continues to implement its state-level individual mandate. This mandate requires all Californians to have qualifying MEC for the calendar year, obtain an exemption, or pay a tax penalty when filing California state tax returns. A one-time break in coverage is permitted of up to three months.

To help Californians understand potential non-compliance penalty exposure, the state has released a comprehensive online calculator. The individual mandate remains effect for 2024 and the foreseeable future, since its enactment in 2020.

It’s important to note that many other states, including Nevada, do not have individual mandates. While the federal ACA individual mandate applies to all 50 states, its associated non-compliance penalty was reduced to $0.00 effective January 1, 2019.

Word & Brown: Your Trusted Compliance Partner in Navigating Health Care Regulations
At Word & Brown, we are dedicated to empowering you with the knowledge, education, and resources you need to navigate the ever-changing landscape of health insurance compliance. In 2024 and beyond, we remain committed to providing comprehensive support and expertise to help you achieve your employer clients’ health insurance compliance goals, while helping them obtain the highest-quality group health plans for their employees and experience best-in-class service.