Tucked away in a Minnetonka office park is a new software company called Health E(fx) that looks like it’s on its way to being a big success, another reminder that our vibrant market economy really does come up with solutions to vexing problems.
What’s remarkable in this case is that Health E(fx) is the kind of business that common sense suggests probably shouldn’t exist at all.
The main thing its software does is automate the seemingly trivial task of filling out a tax form for each employee. And big companies already have the information technology that helps them keep track of all the information they need for their employees.
For companies using a software system such as SAP or relying on ADP for payroll help, how hard could it possibly be to fill out some tax documents for employees? Five clicks of the mouse? Ten?
But as it turns out, the data required to comply with the Affordable Care Act is harder to assemble. In fact, the Health E(fx) founders knew that no number of mouse clicks would easily compile it from the information systems most employers have.
“A lot of the folks thought it was going to be a lot easier than it is,” said Andy Brown, co-founder and CEO of Health E(fx).
The leaders of the company come from two different professional backgrounds. Some, including Brown, came from Wardrop, a global company based in Canada that was most often described as an engineering consulting firm, serving big complex industries like nuclear power and oil exploration.
Brown and a partner took some of their share of the proceeds from its 2009 sale and funded the start up of Health E(fx). From their experience working on big compliance challenges for Wardrop clients, they knew how to attack the technical problems of complying with the ACA.
Another co-founder, Allison Manno, is representative of the other side of the company. She knew how much pain employers would soon be in, having been director of benefits and payroll for Regis Corp. It would be particularly bad for employers with big flexible work forces like hair salon chains or retailers.
Congress did give companies a few years to figure out how to comply with the ACA. The rules here are those that apply to employers called ALEs — not a refreshing cold beer but Applicable Large Employers — the ones now hustling to get ready for a looming deadline.
Generally employers with 50 or more employees have to show that they actually offer health insurance coverage to full-time employees and their dependents. There also are rules about how much that coverage should cost a family.
Further, those employers must send statements to all employees eligible for health insurance coverage. All this has to happen on time or the employer faces the potential for costly fines and penalties, and the law made enforcement the problem of the Internal Revenue Service.
That’s how employers got the task of completing and mailing the form 1095-C, with a copy to the IRS. And as one consultant put it, “once any company has to start reporting to the IRS, the stress level triples.”
It doesn’t look like a particularly complicated form, but the real challenge comes from pulling information from more than one system. Some is basic information in the human resources files. Some of the rest of the data that’s needed comes from the system that keeps track of health benefits. Other data is going to be needed from the payroll system.
Employees who have left the company might elect to keep getting health insurance under COBRA, and management of that has most likely been turned over to some outside firm. Brown said even big organizations seem to track family or medical leaves on a simple spreadsheet.
A survey from April by PricewaterhouseCoopers and Equifax found that just one in 10 big employers had figured out how to comply. Nearly two-thirds admitted being worried about sending employees and the IRS inaccurate data, given their multiple information systems. And more than 15 percent of them admitted to being clueless, having not thought about it or not knowing where to even start.
The first form 1095-Cs are due in just over six months.
Health E(fx) is not the only firm to figure employers have a problem, of course, but it does seem to have been early to a solution. Health E(fx) had a big customer by the end of 2013, the Arby’s Restaurant Group. Robert Norton of Arby’s said he found Health E(fx) through a benefits broker, because he was already looking a couple of years ago for solutions to a problem he knew would come soon enough.
This year, Health E(fx) produced about 30,000 form 1095-Cs for Arby’s. The IRS didn’t want them mailed to employees, Norton said, but about two dozen people called the Arby’s benefits office, having heard from their tax adviser that they would need proof of health insurance. And Norton was able to e-mail what the document would look like — with accurate 2014 information.
As for the rest of the industry serving employers, “they are getting there, but it’s going to be messy,” said Bob Radecki, founder and CEO of a St. Paul-based benefits compliance consulting firm. “It’s raining vendors. I’m up to 60 on my list, and I am just getting started. A couple of them asked for our help with their compliance module. It’s July! This is all due in January!”
There is a lot more the Health E(fx) product can do than just help comply with the law, Brown said, such as providing information on the effectiveness and costs of health benefits. As for now, though, Health E(fx) is busy with customers facing a deadline, and is already up to about 3.5 million employees on the system.
The company itself has more than 50 employees, but so far none of them are traditional salespeople. As Brown dryly observed, “we knew the solution would sell itself.”