3 ACA Reporting Errors and The Pandemic’s Impact
As we approach the end of 2020, we must consider how the various enrollment fluctuations due to the COVID-19 Pandemic will impact the ACA Employer Mandate and the already tedious 1095/1094 ACA Reporting. The IRS recently granted a March 2nd deadline extension for the 1095 reporting and this extra time will likely be needed for employers to accurately audit their data as we are expecting to see additional errors due to furloughs, layoffs and coverage extensions.
Prior to filing, employers should audit their reporting for the following common errors to avoid an unnecessary penalty letter.
Enrollment Changes and Code Errors
For each month an employee is offered coverage and one of codes 1B through 1E is entered in line 14, an employee should have a dollar amount indicated in line 15. If there are blank entries this could trigger a penalty for an unaffordable offer.
Employers will need to review the data to be sure the correct codes are in each month and the correct dollar amount was populated in line 15 to avoid a potential penalty for providing an unaffordable plan per the ACA.
Waiting Period Reporting Inquiries
For those employees in a waiting period, code 2D should be indicated in line 16. The ACA requires no more than a 90-day waiting period. So, if 2D is indicated for more than four consecutive months, a penalty may be assessed.
Employers should verify that those members with 2D codes in line 16 were actually in the waiting period and not incorrectly coded for the months indicated. This will ensure that the employer avoids a potential penalty for not meeting the waiting period requirement of the ACA or incorrect reporting.
Triggering an ACA “No offer Penalty”
During the shutdown, some employers opted to furlough a segment of employees rather than terminate them and subsequently terminated medical coverage during this time. A furloughed employee is typically an active employee and if they are within their stability period, may still be eligible for the plan. The Employer Mandate requires coverage to be offered to at least 95% of full-time active employees or be subject to the 4980H(a) “No Offer Penalty”. If furloughed employees who are wrongfully terminated from benefits exceeds more than 5% of the population, employers may be subject to the 4980H(a) $2,570 penalty per full-time employees minus the first thirty. Also, even if the group stays within the required offer threshold of 95%, they may be subject to the 4980H(b) penalty of $3,860 for each full-time employee who receives subsidized healthcare coverage from an ACA Marketplace. Since these employees may have been wrongfully not offered a plan while active, one or both penalties could be applicable depending on the situation.
If more than 5% of the employees were furloughed and terminated from the plan or an eligible employee was furloughed and terminated from the plan and received a subsidy, unfortunately there is nothing that can be done to avoid the penalty. However, it is important to discover and be aware of the liability to fix it going forward while preparing to respond to a penalty letter.
To formally understand the ramifications of these reporting errors and the impact of COVID-19 furloughs, please consider a consultative conversation. If you would like to review these potential reporting errors and other ACA pitfalls, please contact us for your 30-minute complimentary virtual audit review.
If you have any questions, please don’t hesitate to reach out. We look forward to supporting you.
Download our “ACA Reporting Quick Reference Guide 2020” here. This Guide is intended to provide guidance to applicable large employers (ALEs) on how to properly complete Part II of Form 1095-C, specifically, Lines 14, 15, and 16.