Among the respondents to this survey, about 70% of the fines are over $50,000 and in rare cases over $1 million. Fortunately most respondents, almost three-quarters, appealed the fine and of those over 36% had it reduced by at least 50%.

Trusaic has gathered a substantial amount of data on ACA penalties from 2015-2020 (more recent data is not yet available since it takes the IRS a couple of years to process ACA penalties). While this data is not complete, it only covers the cases Trusaic was aware of, and may be skewed by the type of employers that have worked with Trusaic, we believe it is the best source of information available. Based on this set of data, we observed the following:

Industries most likely to receive ACA penalty letters:

1. Agriculture, Forestry, Fishing and Hunting

2. Accommodation and Food Services

3. Educational Services

4. Health Care and Social Assistance

Industries least likely to receive ACA penalty letters:

1. Real Estate and Rental and Leasing

2. Transportation and Warehousing

3. Manufacturing

These differences are likely driven by a number of factors. First there is simply the number of variable hour workers where tracking who is eligible is a challenge. If there are many low-wage workers then issues around affordability and workers turning down offers of insurance arise. All the problems are magnified if there is high turn-over. In industries like fast food, a person may be hired, quit and rehired, all in the space of a couple of months. Yet another issue is the states in which an organization operates. Five states (California, New Jersey, Rhode Island, Washington D.C., and Massachusetts) currently have ACA employer reporting requirements over and above what is required by the federal government. Organizations operating in those states face more burdensome compliance requirements and hence more opportunities for mistakes to occur. Those responsible for ACA compliance need to be aware that other states, including Connecticut, Hawaii, Maryland, Minnesota, and Vermont, are considering adding state level ACA regulations.

HR can do a back of the envelope risk assessment based on the nature of their workforce so that they can estimate the resources they need to ensure compliance.

The Trusaic data showed that employer size also had an effect on the likelihood of receiving a penalty letter

• Employers with 500+ employees are almost six times more likely to get letters than 100-499 firms.
• Employers with less than 100 employees were roughly half as likely to get a penalty letter as those with 100-499.

This discrepancy probably reflects the fact that having more employees creates more opportunities for error. However, it is very important that smaller firms do not think they can fly under the radar. The IRS has an automated process that will pick out any cases where a discrepancy is flagged. All organizations required to comply with ACA need to take the compliance process seriously.

The Trusaic data on appealing fines is encouraging. In the cases that Trusaic intervened, penalties were completely eliminated for 43% of cases or significantly reduced for another 30% of the cases. Significantly, for those reduced cases, the median amount of the final penalty in these cases was $1,040, that's a 99% reduction on the original median amount.

The Trusaic data also provides insight on the root cause of error and hence where organizations need to be particularly careful (see the next figure).

Root cause of ACA reporting errors

From 2015 through 2018 the most common root cause was an error on the 1094-C form. In many cases, the 1094-C error arose simply from choosing the wrong check box for the statement: "I offered MEC to at least 95% of my full time staff for the applicable year (Yes/No)." The form did not spell out that MEC stood for minimum essential coverage, which could lead to a misunderstanding. Entering "no" or failing to check either box will automatically lead the IRS to issue a penalty letter. Worse, some software packages would default to the wrong answer and if HR did not catch this then the IRS would automatically flag their form.

Form 1095-C coding errors as a proportion of all (simplified) root causes has been rising throughout the years 2015 to 2019. For the first time, in 2019, 1095-C errors were more frequent than 1094-C errors. Form 1095-C is a disclosure on whether the organization has offered an employee health insurance. If that employee goes to an exchange to get insurance, regardless of whether the employee had an offer of coverage from the employer, and then claims a Premium Tax Credit when they file their income tax, the IRS will automatically check to see what the relevant 1095-C says. If there is a discrepancy, then the IRS may send a penalty letter to the organization.

In a white collar workforce where everyone is offered health insurance, forms like the 1095-B and 1095-C rarely lead to problems. However, as previously mentioned, when the workforce has variable hours then complications quickly add up. It is even worse when the workforce is dispersed because it can be very difficult to get them to fill in an acknowledgement that they were offered insurance. It's common for workers in the field to have little interest in logging into the HR website (and they may not even remember their password) simply to confirm that-as they have done year after year-they are turning down the insurance.

The important takeaway is that in many industries, complying with ACA is a difficult and time-consuming task. Errors often occur despite the time and effort HR puts into the compliance process. Leaders may have a poor understanding of the complexities and hence fail to provide HR with the resources they need to minimize the risk of high penalties.

If all that is not enough to grab the attention of leadership, then HR should point out that the cap at 400% of the poverty level has been removed, which makes 3 million more workers eligible. Similarly, the former 9.5% cap for affordability has been reduced to 8.5%, meaning that employers cannot impose more than 8.5% of the employee's pay to satisfy the affordability safe-harbor requirement under the ACA. Furthermore, the various state individual mandates will drive more people to the exchanges. This is not the time for employers to expect HR to handle ACA compliance without adequate time and resources.