Top ACA Compliance Mistakes to Avoid in 2024


 As the 2024 calendar year’s open enrollment period swiftly approaches, it is imperative for organizations to focus on ensuring compliance with the Affordable Care Act (ACA) in order to guarantee that their procedures for managing health plans are well-executed.

Despite nearly a decade of ACA reporting, organizations still tend to make errors in Affordable Care Act compliance, particularly in relation to the ACA’s Employer Mandate. This mandate dictates that employers with 50 or more full-time or full-time-equivalent employees must furnish Minimum Essential Coverage (MEC) that also meets Minimum Value (MV) to at least 95% of their full-time workforce and their dependents.

For businesses of all sizes, navigating the complexities of the ACA’s Employer Mandate can be a formidable task. Making mistakes in ACA compliance can lead to substantial financial penalties from the IRS, such as receiving Letter 226J.

In this article, we spotlight the critical blunders that organizations commonly commit in their efforts towards Affordable Care Act compliance, and we provide recommendations for avoiding them.

Mistake 1: Employee Misclassification

One of the most crucial missteps in Affordable Care Act compliance that organizations can make is inaccurately categorizing their employees. This is significant because the designation of workers as full-time, part-time, or seasonal directly affects their eligibility for ACA coverage.

The primary reason organizations make errors in worker classification stems from insufficient training, inadequate documentation, inaccurate data entry, and a lack of comprehension. When employees are wrongly classified, they may not be offered coverage, potentially leading them to seek a Premium Tax Credit from a state or federal healthcare exchange. This sequence of events triggers the IRS to issue a penalty notice to the organization for not providing adequate Affordable Care Act coverage.

It is evident, therefore, that mistakes in employee classification can result in significant costs for organizations. To prevent this ACA compliance blunder, it is imperative to educate your HR teams on ACA regulations, which define a full-time employee as someone who averages 30 hours of service per week or 130 hours per month. Additionally, ensure consistent use of the same criteria when classifying employees.

Following best practices, consider partnering with an expert in Affordable Care Act compliance. This collaboration will facilitate the establishment of a system for distinguishing between employee classifications, laying a solid foundation for documenting employee types and determining benefits eligibility.

Mistake 2: Improper Application of Measurement Method

The IRS offers two approved methods for ascertaining employee eligibility for ACA coverage: the Look-Back Measurement Method and the Monthly Measurement Method. These approaches entail significantly different procedures for determining ACA full-time status.

The Look-Back Measurement Method is better suited for organizations with workforces characterized by high variability in hours, such as those in the restaurant, construction, hospitality, and education sectors. On the other hand, the Monthly Measurement Method provides a simpler framework that aligns better with workforces primarily composed of stable, full-time employees.

Opting for the incorrect method or implementing a measurement incorrectly can result in gaps in coverage and non-compliance. To mitigate this risk, begin by assessing the nature of your workforce. Do your employees have varying schedules or do they follow consistent schedules each week? Then, ensure that your time and attendance tracking systems are functioning accurately, and confirm that your HR department is maintaining precise records of worked shifts.

Armed with this information, you can make an informed decision about which method will be most effective for your organization. Subsequently, you can implement the relevant measurement, administration, and stability periods.

Mistake 3: Inadequate Recording of Health Plan Details

Selecting a health plan that aligns with ACA requirements is one aspect; however, documenting the specifics of the plan is another critical step. Unfortunately, we frequently observe the oversight of failing to demonstrate that the plans offered indeed comply with the Employer Mandate requirements.

Inadequate or inaccurate record-keeping of plan details and offerings can result in compliance challenges should the IRS conduct an audit or inquiry. To steer clear of this error, it’s imperative to ensure that there exists comprehensive documentation substantiating the quality of your plans. This should encompass information on costs, eligible recipients, duration of availability, and the individuals who have opted for enrollment. Additionally, include particulars about any distinctive plan features like flex credits, opt-out payments, and health reimbursement arrangements.

Following best practices, it is advisable to maintain this information in electronic format, facilitating easy retrieval and distribution.

Mistake 4: Erroneous ACA Reporting

Precise reporting of the annual 1094-C and 1095-C forms stands as a crucial pillar of Affordable Care Act compliance. Mistakes in reporting can result in audits and subsequent penalties. In fact, research indicates that inaccurate ACA reporting ranks as a prominent factor prompting the IRS to levy penalty assessments.

These inaccuracies encompass erroneous code combinations, flawed full-time calculations, omitted information on the 1094-C transmittal, and inconsistent details regarding the Employer Identification Number (EIN).

To avert this misstep in Affordable Care Act compliance, establish a robust reporting system, meticulously review all information, and adhere to each filing deadline punctually. This necessitates allocating sufficient time for generating the 1095-C forms annually. A practical approach to achieving this in a timely manner is to institute a monthly ACA compliance process.

Mistake 5: Neglect Important ACA Updates

The Affordable Care Act (ACA) is a dynamic law, subject to ongoing evolution. Disregarding updates and alterations to ACA regulations is a serious oversight, though it is understandable given the frequency and sometimes abrupt nature of these changes. For instance, consider the continuous evolution of state ACA reporting requirements, which undergo annual revisions, placing additional obligations on employers with operations in those regions.

Neglecting to acknowledge these supplementary requirements and staying abreast of annual reporting modifications can have a significant impact on your compliance status under the Affordable Care Act. Some states, like California, impose penalties for non-compliance with ACA state reporting.

The same holds true for federal ACA requirements, which also undergo annual adjustments, such as shifts in affordability thresholds.