The role of brokers in the age of ACA enforcement

The Affordable Care Act (ACA) is complex, which is why many employers turn to benefits brokers to help them understand their obligations under the law. Despite the time and effort brokers have put into educating clients on ACA reporting, thousands of applicable large employers (ALEs) are receiving penalty letters stating they didn’t comply with ACA rules.

As a broker, what is your responsibility to clients that received these notices and are seeking assistance and guidance?

ACA penalties have become a reality

And they can be costly. According to the Congressional Budget Office, the IRS could collect more than $200 billion from liable ALEs over the next decade.

Since the ACA employer mandate was rolled out in 2015, ALEs have relied heavily on brokers to offer advice, updates, strategies, and technology to help them adhere to the health law and avoid fines from the IRS. With thousands or millions of dollars in fines on the line, it’s no surprise they’re now turning to you to find out what went wrong, and determine how to respond or refute the IRS’s claims.

But there may be more at stake. It’s not a stretch to think some disgruntled ALEs might try to recoup some of their ACA fines from you, their trusted advisors that provided guidance on ACA compliance. Especially if the ALE can prove negligence or dereliction of duty.

For instance, one ALE we spoke with is facing a $3.0 million penalty for filing year 2015. In this specific case, the ALE’s broker didn’t take the time to convey the fundamentals of the ACA or the importance of tracking employees who were not designated full-time. Without an accurate snapshot of their employee population, the employer didn’t make the appropriate offers of health coverage.

That example is likely the exception rather than the rule. Most of the brokers we come across have committed to and take the role of trusted advisor seriously. Clerical errors made by an ALE are much more commonly to blame for reporting mistakes and ESRP fines.

But the point remains: When an ALE is faced with a high penalty, they might look to their brokers to assist with not only the official IRS response, but in some extreme cases, the financial burden as well.

ACA enforcement means new broker responsibilities

As the IRS continues to assess ACA penalties, brokers have an obligation to help clients respond to penalty Letter 226-J. Regardless of the reason for the penalty, employers need to find and submit supporting documentation, such as health plan records, affordability calculations, and employee tracking data, within 30 days. As their benefits broker, you should have this information easily accessible or know how to assist the ALE in locating it.

We’d suggest going even one step further and reviewing clients’ filings for 2016 and 2017 for potential liabilities. The IRS hasn’t introduced a refiling process to date, but it’s always in your clients’ best interests to ensure the IRS has the most accurate information possible. Who knows, perhaps providing documentation to the IRS before they send out penalty letters could lessen your clients’ financial responsibility down the road.

Preparing for next reporting season

Earlier this month the House Ways & Means Committee approved H.R. 4616, the Employer Relief Act, by a 22-15 vote. The bill would retroactively suspend the ACA employer mandate from 2015 through 2018 and delay the Cadillac tax until after 2022.  The bill is now with the Rules Committee who will determine when the resolution will go to the House floor for a vote. However, a House vote doesn’t mean the Employer Relief Act will become law. If it passes the House, three additional hurdles remain before this resolution could potentially become law: It must pass the Senate, have any amendments approved by the House, and then be approved by the President. 

Additionally, in its current form this resolution does not suspend reporting and penalties beyond 2018, which means ALEs must continue to either offer full-time employees minimum value, minimum essential coverage that’s affordable, or potentially make an employer-shared responsibility payment to the IRS.

So even while folks in Washington continue efforts to dismantle the ACA, the most prudent course of action is to take time to ensure that you, the rest of your brokerage, and all clients fully understand and are complying with the ACA requirements.

Fully explain the ACA reporting process and make sure the HR pros responsible for the filings are aware of common challenges and pitfalls. Considering the high turnover rate in HR departments, hold periodic training sessions for clients on ACA reporting so any new HR employees are aware of the requirements. Communicate to them the importance of monthly payroll updates for accurate tracking and of documenting employee offers of coverage (and the outcomes of these offers) to demonstrate compliance.

You never want your clients to face penalties, especially if there’s even a slim chance they’ll hold you responsible. Don’t give clients the opportunity to blame you for lack of ACA support and guidance.

Help them with their Letter 226-J response, review past filings, and provide ongoing education on the importance of ACA compliance. Doing so will enable you to truly fulfill your role as trusted advisor, and may even be a competitive differentiator, aiding in both client retention and new business.