By Christy Abend
The Affordable Care Act (ACA) has shaken things up when it comes to employer-sponsored health insurance, and one of the biggest concerns we hear from HR benefits pros like you is the risk of a potential IRS audit. It's understandable to feel uneasy about the possibility of an audit. The good news is that understanding the process and being prepared, if one does arise, can help reduce your organization's risk and make the whole experience go much smoother. Let's dive into the basics of ACA audit preparedness, with a focus on why documentation and real-time risk monitoring may be your best friends in this process.
In the realm of ACA audits, documentation serves as one of your primary lines of defense. During an audit, the IRS will scrutinize various aspects of your organization's health insurance offerings and employee eligibility. Therefore, maintaining meticulous records across all aspects of your ACA processes, from eligibility determination calculations to offers of coverage, is crucial. Your accurate and up-to date documentation should encompass details regarding:
ACA Benefit Eligibility Determination: Detail the measurement methods used (monthly or look-back), measurement periods, and how you categorize employees for different measurement rules.
Health Plan Documents: Outline the benefits offered, whether the plans meet minimum essential coverage and minimum value requirements, and the affordability method used.
Affordability Calculations: Exhibit how you determined the cost of the lowest-cost plan, employee premium cost sharing, and how you group employees for different affordability calculations.
Offer of Coverage: Keep records of enrollment materials, distribution procedures, and employee communications related to coverage offers.
Employee Benefit Eligibility Results: Catalog records of hours of service, enrollment records, waivers of coverage, and pay data used for affordability calculations.
Historical Forms: Retain copies of all past Forms 1094 and 1095 filed with the IRS.
It is important that you review your documentation and make sure you're updating it each year with any changes to your processes or methods, including your plan costs and coverage information.
Having a well-documented ACA process can help you track and maintain records of employee coverage offers, affordability, and enrollment, which are critical for ACA reporting requirements. When facing an audit, this can help your organization prove that you are meeting your ACA obligations, and help ensure your organization remains up to date as regulations evolve.
Almost as important as the thoroughness and consistency of your documentation process, is having a cadence in place to monitor your organization's ACA risk. Regular monitoring can help you identify potential issues and penalty risks early on, allowing you to help rectify them promptly and possibly avoid unnecessary penalties. For example, if you miss offering coverage to an eligible employee, catching this error early could enable you to make a retroactive offer and help mitigate penalty risks.
Proactively addressing any gaps from prior IRS filing years is also critical to any ACA management strategy as there is currently no statute of limitations on ACA Employer Mandate penalty assessments. Assess your IRS filings from prior years to help identify any potential ACA penalty risks, including missing safe harbor codes, invalid code combinations, and unresolved filing errors. Prepare and file corrected forms to the IRS if needed.
In addition to federal ACA requirements, it is important to remember that several states have their own healthcare mandates. Not adhering to these reporting rules can lead to potentially costly tax penalties and reporting errors,so it’s vital that you not only stay current with IRS rules, but also stay current on state updates and requirements. If your organization has employees residing in any of these states (link to list/resource), it's crucial to document your compliance with both federal and state regulations to help reduce the risk of penalties from multiple jurisdictions.
Reminder: State healthcare reporting requirements are based on where employees LIVE, or with the District of Columbia, where employees live OR work.
Preparedness is your best defense in the face of an ACA audit. Beyond understanding the steps for ACA audit preparedness, having the right tools and support can help make all the difference. ACA HQTM from Equifax can help you streamline your ACA management efforts from more accurate data collection and reporting to expert ACA insights and audit support. We can also help you review your potential ACA risks in your IRS filings from prior years.
Contact us to learn more about ACA HQ and how to get an in-depth risk assessment on your current ACA process with our recently launched product, ACA Inspect ™.
Disclaimer: This article is intended to convey general information and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel.
About the Author
Job Title: Director, Product Management
Christy Abend has more than two decades working in the human resources and product management space, with a concentration in health and welfare benefits and a focus on employer regulatory alignment. Her background and interests facilitate her work on the ACA products offered by Equifax Workforce Solutions. She has a Bachelor of Science degree with a concentration in Human Resource Management from the State University of New York, Empire State College and also holds a SHRM-SCP certification as well as a Group Benefits Associate designation awarded by the International Foundation of Employee Benefit Plans and the Wharton School of the University of Pennsylvania.