Transcript ADP Deck - indyapa
John A. Haslinger, VP Strategic Advisory Services ADP
September 2014
ACA Administrative Best Practices
Federal Courts Issue Conflicting Rulings
(July 22, 2014)
Halbig v. Burwell: D.C. Circuit Court of Appeals (3 judge panel) ruled that federal subsidies were only available in exchanges established by each individual state The court found that the Affordable Care Act (ACA) plainly states that such subsidies, in the form of refundable tax credits, are available only to taxpayers “covered by a qualified health plan ... enrolled in through an Exchange established by the State under section 1311 of the [ACA].” Obama administration said it will ask the full D.C. Circuit court to review the decision King v. Burwell: 4th Circuit Court of Appeals (3 judge panel) ruled that federal subsidies were legal in both exchanges established by the states and those established by the federal government Despite agreeing that the plaintiffs’ argument had a “common-sense appeal,” the court ruled that “the applicable statutory language is ambiguous and subject to multiple interpretations” and deferred to the Obama administration’s interpretation of the law.
Plaintiffs have petitioned the Supreme Court to resolve the conflict between the two decisions
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Best Practices Are Based On Three Criteria
Keep employer costs as low as possible
Minimize administrative effort
Ensure Compliance with ACA requirements
ADP DOES NOT PRACTICE LAW OR GIVE LEGAL ADVICE ADP STRONGLY RECOMMENDS THAT CLIENTS OBTAIN QUALIFIED LEGAL COUNSEL PRIOR TO MAKING ANY DECISIONS 3
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ACA Is Not Benefit Legislation It Is Social Legislation With Far Reaching Business Impact
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ACA Will Impact…
Employers Individuals Healthcare Providers Insurance Companies Pharma & Medical Device Manufacturers 5
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ACA – Broad Human Capital Management Impact
IT/Systems
Finance Tax • Integration • Security • Data exchange (17 states+ Washington, D.C., and 8 Federal partnerships. 26 states no Federal partnerships / unknown) • System updates/change management • Data recordkeeping (7 years) • Reporting • Cost of complying/data modeling • Fees/fines/penalty assessments & reconciliation • Money movement/remit payments • Certify Annual Health Care Coverage Report 1095-B • Receive and reconcile IRS penalty estimates and appeal where appropriate • Auditing Legal • Stay current on complex regulations • Interpret law – Federal & State Exchange changes • Ensure legal compliance
Human Resources
• Communication • Employee calls/shared service center • Reporting
Payroll and Time Benefits
• Calculating look back period (keep data in sync) • Affordability calculation • Prepare and distribute new annual report (6055/6056) • Compliance communication • New plans/wellness/rewards • Multi-employer coordination
Unknown
• Notice of coverage options • Verification of inquiries from Exchanges • Receipt of notices from Exchanges • Management of reporting deadlines/ period management • Administrative challenges • Staff to meet demands
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Shared Responsibility (Employer Mandate): Decision Flow To Avoid Penalties
1 st Check:
Employer has on average 50 full-time employees plus full-time equivalent employees in the prior year?
No
2 nd Check:
Yes
IRC
§
4980H(a) – “The Big Penalty
” Does the employer offer
minimum essential coverage
to at least
95% of its ACA full-time employees
?
No Did at least one employee receive a premium tax credit or cost sharing subsidy in an Exchange?
Yes
IRC
§
4980H(b) – “The Lesser Penalty” 3rd Check:
Does the plan provide coverage of at least
60% minimum value
?
No Yes Those employees can choose to buy coverage in an Exchange and may receive a premium tax credit.
4 th Check :
Do any full-time employees pay more than
9.5% of current year
Box 1 W-2 Wages, Rate of pay, or Federal Poverty Level for self-only coverage?
No There is no penalty payment required of the employer since it offers affordable coverage.
Yes Yes Penalties do not apply to small employers.
The penalty (assessed monthly) for not offering coverage is the number of full-time employees (minus 30) times
$2,000 annually
.
The penalty (assessed monthly) for failure to offer minimum value and/or affordable coverage is a
$3,000 annual penalty
due for each full-time employee receiving a subsidy, up to a maximum of the total number of full-time employees (minus 30) times $2,000
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Compliance Documentation
As part of employer annual renewal and open enrollment process Obtain from carrier written documentation that each plan (or the “compliance plan”) meets Minimal Essential Coverage (MEC) requirements Document actuarial value of each plan (or the “compliance plan”) – Use HHS Calculator at: http://www.cms.gov/CCIIO/Resources/Regulations-and Guidance/Downloads/mv-calculator-final-4-11-2013.xlsm
– For small number of plan designs it may be necessary to have actuarial valuation done Obtain annual authorization (should also be obtained as part of new hire on-boarding) to use employee provided personal email for distribution of legally required documents – Only applicable for employers who do not provide email and computer to each employee – Signed authorization should fully comply with DOL Electronic Distribution requirements – Authorization language should be drafted in consultation with qualified legal counsel
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Measurement Period
Employers may select an ongoing measurement period ranging from 3 to 12 months Should evaluate if making all employees fully eligible for health care benefits is more cost effective than tracking hours of service – Applicable when there is only a small population for which benefit elgibility may vary with hours of service Shorter measurement periods will always be more expensive due to More employees will qualify as ACA F-T in shorter measurement periods due to the inability to average short-term spikes in hours of service over longer time-frames – As a result more will sign up for coverage and incur claims Eligibility will have to be calculated at least twice per year and employees attaining ACA F-T status will have to be offered the option of enrolling COBRA activity will increase as employees who qualified as ACA F-T due to a short term spike in hours of service during one measurement period, fail to repeat that in the subsequent measurement period, thereby losing benefit eligibility mid-year
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Will result in full 12 month stability period which is one of the requirements to use the simplified reporting approach (i.e., 12 month offering of coverage to ACA F-T employees) © Copyright 2014 ADP, LLC. Proprietary Information.
New Hire And Ongoing Measurement Periods With Administrative Periods
Full-Time Employees Groups: Hourly , Exempt, Collectively Bargained, States Flags & Rules: Seasonal, Variable Hour, Breaks in Service, LOA, etc.
2013 2014 2015 Oct No v De c Jan Fe b r Ma Apr Ma y Jun Jul Au g Se p Oct No v
DO H 90 Day Admin Coverage in Force OE Admin Period 12 Month Look Back Standard Period: Ongoing Hourly EE
De c Jan Fe b r Ma Apr Ma y
Coverage in Force
Jun Jul Au Se Oct No
during the “Measurement”
De
Once eligibility is determined period, employee will be treated as either ACA FT or ACA PT for the duration of the “Stability” period, regardless of hours worked.
2013 2014 2015 Oct No v
Look-Back
De c Jan Fe b r Ma Apr Ma y Jun Jul Au g Se p Oct No v De c
90 Day Admin
Jan Fe b r Ma Apr Ma y
Stability Coverage Period
Jun Jul Au g Se p Oct No v De c
Look-Back 10 Month Look Back Initial Measurement Period to determine eligibility: Variable Hour New Hire
2013 2014
in Exchange & qualify for subsidy Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015
Jan New Hire Feb Mar Apr May Jun 90 Day Admin assessed it calculated monthly on Stability Period Jul Aug Sep Oct Nov Dec 10
DOH
1 11 Month New Hire / Forward Measurement Period 2 3 4 5 6 7 8 9 10 11 60 Day Ad Pd Stability Coverage Period 12 13 Look-Back
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90 Day Admin
Offering Requirement Applies
Full-Time Employees
2013 2014 2015 Oct Jan Fe b Apr Jun Jul Oct Jan Fe b No v De c r Ma Ma y Au g Se p No v De c r Ma
DO 90 Day Admin Coverage in Force H 12 Month Look Back Standard Period: Ongoing Hourly EE
2013 Oct No v
Look-Back
De c 2014 Jan Fe b r Ma Apr Ma y Jun Jul Au g Se p
OE Admin Period
Oct No v
Look-Back
De c
90 Day Admin Coverage in Force
2015 Jan b
% 10 Month Look Back Initial Measurement Period to determine eligibility: New Hire
Apr Ma y Ma y Apr Jun Jul Jun Jul Au g Se p Oct No v De c Au g Se p Oct No v De c
90 Day Admin Variable Hour New Hire
2013 2014
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 11
DOH
1 11 Month New Hire / Forward Measurement Period 2 3 4 5 6 7 8 9 10 11 60 Day Ad Pd 12 13 Stability Coverage Period Look-Back
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90 Day Admin
Hours of Service
Hours of service include Hours paid and worked Hours paid and not worked – such as paid vacation or paid leaves Special unpaid leaves of absence – FMLA – Family Medical Leave Act – – USERRA – Uniformed Services Employment and Reemployment Rights Act Jury Duty Set up a separate leave code for every type of leave, both paid and unpaid Ensures ability to track the current three special leave types – Critical to ensure that coverage is offered to at least 95% of all ACA F-T employees Provides flexibility should other leaves need to be included due to either state or federal regulations For some employers declaring all employees ACA F-T and eligible for medical coverage may be less expensive than tracking hours of service Makes sense for employers with very few Variable Hour / Part-Time employees Typical industries where this makes sense – Professional Services – – Manufacturing Utilities
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Plan Design
Implement a “compliance plan” with a 60% actuarial value that is available to all employees of the employer Aids in keeping health plan costs below the excise tax limits that begin in 2018 Plan can be used as the “compliance plan” for all required testing – Meets Minimum Essential Coverage (MEC) requirements – Is offered to at least 95% of all ACA F-T EEs (70% in 2015) – Has 60% actuarial value – Meets Affordability Requirements Can make meeting affordability requirements easier if other/current plans have an actuarial value greater than 60%
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Affordability
Three safe-harbors 9.5% of Federal Poverty Level – The lowest threshold due to FPL – Simplest to administer 9.5% of monthly rate of pay – Lowest hourly rate of pay each month X 130 – Simpler to administer than Box 1 W-2 – but threshold is not as high as it could be 9.5% of Box 1 W-2 – Includes all components of pay: Overtime, Shift Differentials, Commissions, Bonus, etc – – Excludes IRC Sec. 401(k) and 125 contributions Provides highest threshold Defined contribution strategy can help minimize costs Limit employer subsidy to one of the affordability safe-harbors Employees pay the full cost of benefits other than this subsidy Employer can maintain existing net-cost of benefits for employees by re-balancing total rewards strategy – Reposition money from direct benefit subsidies to such things as 401(k) match and/or direct compensation – Move costs form health care inflation to compensation inflation
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Proof Of “Offering” Coverage
Roll-over existing elections Does not address – Current waivers – Newly eligible Bar-coded first class mail Electronic distribution Must comply with DOL requirements Drop shipments Must obtain employee signature Actual affirmative elections made by employee
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Medicaid As Alternative
Medicaid can be an affordable alternative for low paid employees The Affordable Care Act expands coverage low income Americans by creating an opportunity for states to provide Medicaid eligibility, effective January 1, 2014, for individuals under 65 years of age with incomes up to 133 percent of the federal poverty level (FPL)
No. Persons In Family
1 2 3 4 5 6
Federal Poverty Level: 2014 48 Contiguous States
$11,670 $15,730 $19,790 $23,850 $27,910 $31,970 7 $36,030 8 $40,090
Source:
Federal Register on January 22, 2014
133% of FPL 48 Contiguous States/DC
$15,521 $20,921 $26,321 $31,721 $37,120 $42,520 $47,920 $53,320 Beginning in 2014 coverage for the newly eligible adults will be fully funded by the federal government for three years. It will phase down to 90% by 2020 Only 26 states have expanded Medicaid eligibility
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Medicaid As Alternative
(continued)
26 states (plus the District of Columbia) have expanded Medicaid eligibility Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Hawaii Illinois Iowa Kentucky Maryland Massachusetts Michigan Minnesota Nevada New Hampshire New Jersey (not permanent) New Mexico New York North Dakota Ohio Oregon Rhode Island Vermont Washington West Virginia Three additional states are considering expansion (Missouri, Pennsylvania, Utah) In states that have expanded Medicaid eligibility, eligible employees who qualify for Medicaid can enroll in coverage that has: No cost No deductibles No Co-pay Networks offered to Medicaid participants tend to be narrow – and some providers are not taking new patients
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Employers are not subject to any ACA penalty for employees who are eligible to enroll and who elect to do so © Copyright 2014 ADP, LLC. Proprietary Information.
Dependent Verification
People covered under a plan generate costs in the form of Claims and related administrative expenses PCORI fee equal to the average number of lives covered during the policy year or plan year multiplied by the applicable dollar amount for the year as shown below: – $1 for plan years ending after Sept. 30, 2012 and before Oct. 1 2013 – $2 for plan years ending after Sept. 30, 2013 and before Oct. 1 2014 – Amount to be announced based on inflation in National Health Expenditures for future years Transitional Reinsurance Fees – The fee is currently set at $63 per covered life – First payment due November 2014 – Set to expire after 3 years Implement the following controls Conduct initial dependent eligibility audit Require proof of dependent status when adding every new dependent Create system edits to preclude ineligible dependent status from being permitted – Aging rules – – Dual spouse/significant other edit Failure to provide proof of dependent status
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Employed Spouse Restrictions
Due to the importance of controlling both costs and ensuring that only those who should be considered eligible are actually covered, employers should implement limitations on participation by spouses who are employed and offered coverage by their own employer Spouses are not required to be offered coverage under ACA Limitations can help reduce – Claims and related administrative expenses – PCORI Fees – Transitional Reinsurance Fees Limitations can vary depending on employer goals – UPS has indicated that spouses offered coverage where they work will not be eligible to – enroll for coverage under the UPS plan Other employers are implementing spousal surcharges – charging spouses who are offered coverage through their employer an additional premium in order to be covered under the employee’s plan
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Excise Tax
Beginning in 2018 ACA places hard dollar limits on how much can be spent on health care by employers These limits are indexed to CPI going forward Since 1965 there is not a single year in which per capita health spending did increase faster than inflation as measured by the CPI
1 and 2
Published estimates indicate that as many as 60% of employers will incur this tax in 2018 unless they make changes to their plans before that date
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Any costs above these limits will be subject to a 40% non-deductible excise tax Conduct excise tax liability analysis Project through 2025 Identify when plan costs will exceed excise tax cap Evaluate alternative plan designs – Consumer Driven Health Plans can be a critical component in addressing this
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Per Capita National Health Expenditures (NHE) - Centers For Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, U.S. Department of Commerce, Bureau of Economic Analysis
2.
Percent Change in CPI (All Items and Medical Care) – U.S. Dept of Labor, Bureau of Labor Statistics
3.
Expanding Options for Employers in Next-Generation Private Exchanges, Towers Watson, July 2013 © Copyright 2014 ADP, LLC. Proprietary Information.
ACA Impact On Employer Sponsored Plans
Government mandated coverage coupled with ongoing health care inflation will reduce employers’ ability to design health care plans that act as a differentiating component of total compensation and will increase likelihood of employers: Eliminating / reducing coverage • Focusing on consumer based solutions HDHPs • HRAs, HSAs • • Wellness Potentially moving some employees to exchanges for coverage
40% Excise Tax On Cost Of Benefits Above Limit
$10,200(A)
/
$11,850(R) for Individual “Cadillac Tax” $27,500(A)
/
$30,950(R) for family
Strategic Benefit Plan Design
Medical inflation continues to rise at 1.8 times the rate of overall inflation Per capita health costs have grown faster than the rate of CPI every year since 1965 – Since 2001 they have gone up an average of 2.2 times the rate of change in the CPI Includes ER and EE Contributions for: Medical Rx ASO Fees FSA HRA HSA (ER Pre-Tax Contributions) (ER Pre-Tax Contributions) The value of strategic benefit design will shrink over time due to health care reform
Mandated Requirements
21 The Excise Tax Applies To Both Grandfathered Plans and Non-Grandfathered Plans
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The Excise Tax: Two Simple Examples
Exceeding the excise tax limits by even a small amount can result in a significant
non deductible
penalty In Example 1 – – Individual costs exceed the excise tax limit by only $350 per year ($29 per month) Family costs exceed the excise tax limit by only $725 per year In Example 2 – the only thing that has changed is the number of employees This example illustrates the impact on an employer with 8,000 employees rather than the first example’s 2,000 employees
EXAMPLE 1
Excise Tax Limit Cost of Plans Amount Subject To Excise Tax Number Enrolled Annual Penalty In 2018 Individual Coverage $10,200 $10,550 $350 500 $70,000 Family Coverage $27,500 $28,225 $725 1,500 $435,000 Total 2,000
$505,000 22 EXAMPLE 2
Excise Tax Limit Cost of Plans Amount Subject To Excise Tax Number Enrolled Annual Penalty In 2018 © Copyright 2014 ADP, LLC. Proprietary Information. Individual Coverage $10,200 $10,550 $350 1800 $252,000 Family Coverage $27,500 $28,225 $725 6,200 $1,798,000 Total 8,000
$2,050,000
Example: Estimating Excise Tax in 2018
Assumptions Health Care plan costs in 2012 (includes ASO fees for self-insured plans): – – – Individual - $ 5,615
Source:
Kaiser Family Foundation, 2012 Employer Health Benefits Survey Family $15,745 Note: cost are approximately 1.5% higher for large employers – but average costs are used below Average annual FSA contribution of – Individual: $ 750 (held constant - not increased for any inflation assumption) – Family: $1,250 (held constant - not increased for any inflation assumption) $23,000
Individual Coverage ($5,615 in 2012)
10.5% Trend $21,000 $19,000 $17,000 $15,000 $13,000 $11,000 $9,000 $7,000 $5,000 6.2%% Trend 8.5% Trend
3.5% CPI
$65,000
Family Coverage ($15,745 in 2012)
$60,000 $55,000 $50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 6.2%% Trend 10.5% Trend 8.5% Trend
3.5% CPI 23 2018 2019 2020 2021 2022 2023 2024 2025
2018 2019 2020 2021 2022 2023
Unless They Make Plan Changes, Most Employers Will Exceed The Excise Tax Limits No Later Than 2019 – With Many Incurring A Penalty in 2018
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Draft 1095-C: Employee Statement
Codes: Part II Line 14 – Offer of Coverage
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1A. Qualified Offer: Minimum Essential Coverage providing Minimum Value offered to full-time employee with employee contribution for self-only coverage equal to or less than 9.5% mainland single federal poverty line and Minimum Essential Coverage offered to spouse and dependent(s).
1B. Minimum Essential Coverage providing Minimum Value offered to employee only.
1C. Minimum Essential Coverage providing Minimum Value offered to employee and at least Minimum Essential Coverage offered to dependent(s) (not spouse).
1D. Minimum Essential Coverage providing Minimum Value offered to employee and at least Minimum Essential Coverage offered to spouse (not dependent(s)).
1E. Minimum Essential Coverage providing Minimum Value offered to employee and at least Minimum Essential Coverage offered to dependent(s) and spouse.
1F. Minimum Essential Coverage not providing Minimum Value offered to employee, or employee and spouse or dependent(s), or employee, spouse and dependents.
1G. Offer of coverage to employee who was not a full-time employee for any month of the calendar year and who enrolled in self-insured coverage for one or more months of the calendar year.
1H. No offer of coverage (employee not offered any health coverage or employee offered coverage not providing Minimum Essential Coverage).
1I. Qualified Offer Transition Relief 2015: Employee (and spouse or dependents) received no offer of coverage, or received an offer of coverage that is not a Qualified Offer, or received a Qualified Offer for less than all 12 Months.
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Codes: Part II Line 16 – Safe Harbor
2A. Employee not employed during the month.
2B. Employee not a full-time employee.
2C. Employee enrolled in coverage offered.
2D. Employee in a section 4980H(b) limited non assessment period.
2E. Multiemployer interim rule relief.
2F. Section 4980H affordability Form W-2 safe harbor.
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Draft 1094-C: Employer Transmittal
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Draft 1094-C: Employer Transmittal
(continued)
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Draft 1094-C: Employer Transmittal
(continued)
Still To Come
Non-Discrimination Rules For Health Plans IRC Sec. 105(h) applicable to self-insured plans to be enforced All self-insured health care plans are required to pass two tests under IRC Sec. 105(h): – Eligibility Test: the Plan does not discriminate in favor of Highly Compensated individuals as to eligibility to participate – Benefits Test: the benefits provided under the Plan do not discriminate in favor of participants who are highly compensated individuals ACA requires IRS to promulgate non-discrimination rules for fully-insured plans – Likely to be released for effective date of January 2016 Auto-Enrollment Required under ACA Effective date is not specifically stipulated in the legislation Likely to be released for effective date of January 2016 Significant issues related to IRC Sec. 125 are likely
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Addressing the Pillars of Employer Shared Responsibility
ACA Mandates HCM Enablers Applicability Eligibility Affordability
Designed for small to mid-sized employers who have not determined whether ACA applies to their company or are on the cusp Calculate eligibility based on hours of service Understand ACA benefit eligibility trends with insightful analytics Centrally access essential employee payroll and benefits information Create and historically track multiple measurement periods and employee groups Assess and monitor employee income in relation to various safe harbor tests
Regulatory Management
Provide required notice of coverage options for new hires Provide post-enrollment verification information to applicable marketplaces Manage notices issued by state and federal marketplaces Automate the required annual health coverage report Calculate, reconcile and file payment of penalties
Enrollment
Inform benefits solution with eligibility indicators
Workforce Management
Leverage reporting track/monitor employee hours towards approaching ACA eligibility thresholds Provides indicators to help enable proactive scheduling adjustments for employees approaching organizations ’ defined thresholds
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ADP Solution for ACA
Comprehensive Service Customer-focused User Interface Analytics & Forecasting Eligibility FT/PT Determination 70% Coverage Test Affordability Regulatory Management Regulatory Management Exchange Management Annual Reporting Penalty Assessments & Reconciliation 32
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HCM Platforms Human Resources Payroll Benefits Time I9 Leaves Enrollment Workforce Management Employees IRS/DOL Exchanges