Prepare Yourself for an ACA Audit
Employers and health plan sponsors have numerous obligations under the Affordable Care Act (ACA). Starting in 2015, the ACA required large employers to provide affordable health coverage that meets minimum standards to their full-time employees, or else, face penalties.
Employers must also demonstrate compliance with new disclosure and reporting requirements under specific IRS codes. When an employer fails to comply with ACA requirements, the penalties can be severe, so documentation of compliance is essential in the event of an ACA audit.
If you’re an HR manager or director, or another member of the team responsible for ACA compliance, there’s no way to guarantee you won’t be the subject of an ACA audit. There are, however, practical steps you can take that will keep your audit risk to a minimum.
Minimizing Risk of a Department of Labor ACA Audit
The Department of Labor has authority under the Employee Retirement Income Security Act of 1974 (ERISA) to audit employee benefit plan compliance with federal laws, including the ACA. These audits generally require submission of requested documents related to employee benefit plans and are announced via investigatory letter sent by the Department. In ACA audits, the Department specifically requests documents demonstrating ACA compliance. Minimizing risk of a Department of Labor audit can be done with several best practices:
- Filing Form 5500 on time, filled out completely and accurately
- Distributing all required plan participant notices by their deadlines
- Providing timely updates to summary plan descriptions and plan documents when there are legal or design changes
- Responding to employee benefit questions promptly and thoroughly
ACA Audits by the IRS Are Another Concern
Mistakes in reporting under IRS requirements can be tremendously costly. In addition to general non-compliance, an IRS auditor may look for a series of vague or non-specific answers to signal a red flag. Under the ACA, eligibility is set at 130 hours per month, and employers whose workforce has unpredictable hours (including workers who are expected to put in fewer than 130 hours per month) have to use variable hour tracking and status reporting, which can be quite complex, and which can invite IRS scrutiny.
Another avoidable ACA audit trigger is timely, complete, and thorough reporting, primarily with the 1094-C and 1095-C forms. It is important to ensure that health plans comply with affordability regulations, because fines can result when they do not.
Effectively Demonstrating ACA Compliance
Audit letters typically request specific documents and apply a specific deadline, so it’s critical that employers retain all documentation that could be used to respond to an ACA audit. If responses to these requests are inadequate, more documents could be requested, as could on-site visits by the auditing agency. Make sure you maintain and can retrieve:
- Records of steps taken to comply with ACA requirements, such as plan participation data and copies of communications with plan participants
- Records of procedures or plan amendments adopted for ACA compliance
- Contracts or agreements with service providers
- Copies of notices provided to the employer under the ACA, like notice of “grandfathered” status and notice of enrollment for children until age 26
Employers who work with ACA compliance service providers must ensure these providers retain the proper documents and can produce them upon request. It’s essential that employers choose service providers carefully and understand service level agreements completely.
Recordkeeping After an ACA Audit
If your organization is audited for the ACA, you need to retain all documents related to the audit for 12 months after the deadline for an audit appeal, which is 90 days following the auditor’s final report. In other words, after the auditor’s final report is issued, you must keep documents for a total of 15 months. It is possible that the Department of Justice could require that you keep records for longer periods under certain circumstances.
Increasing your compliance efforts now can help you avoid triggering ACA audits and help you comply if you’re the subject of an audit. The more prepared and organized your business is before problems arise, the more efficiently you can resolve any problems.
Need help with the ACA? Tango Health offers a full-service ACA Compliance & Reporting solution and we specialize in large, complex businesses. Learn more about our ACA Compliance & Reporting Solution or if you have any questions, Contact Us.
Categorized in: ACA