The Affordable Care Act (ACA) has made many changes to the health insurance industry and to employers’ delivery of health insurance products. The latest employer requirement is to report minimum essential coverage (MEC) and details regarding coverage offered by applicable large employers (ALEs), also widely referred to as Forms 1094 and 1095 obligations. Do all employees have to report, when are the forms due, and what information is required? In other words, what are the simple facts?
Background
With new Marketplaces providing insurance coverage and premium subsidies, a large amount of information needs to be verified; including income, current insurance coverage and what employer-sponsored plans are available. Since individuals may acquire health insurance coverage from their employer, through an individual broker or agent, or at the Marketplace, verifying information on millions of Americans is a formidable task.
Specific information needed on individuals receiving coverage and premium tax credits at the Marketplace includes:
- Individuals already covered by a health plan.
- Individuals eligible and offered ACA-compliant employer-sponsored group health coverage.
- Individual’s income.
Two IRS filing requirements will supply most of this data. One involves every employer that sponsors a self-insured health plan and every insurance carrier. Employers with self-funded plans and insurance carriers are responsible for Internal Revenue Code Section 6055 information filing and statements to employees. This is called “Provider Reporting.”
The second IRS filing requirement, under Code Section 6056, is required of ALEs to report coverage offered to their employees and provide statements to employees. The IRS will use the information provided on this filing to administer the employer shared responsibility provisions of Code Section 4980H.
Provider MEC Reporting
Employers have certain obligations to provide ACA-compliant health insurance that is both affordable and offers minimum value (MV) – which makes up minimum essential coverage (MEC).
- Minimum value (MV) means that the insurance coverage must provide at least 60 percent of the cost of benefits provided by the plan.
- Affordability means that the lowest-cost option does not exceed 9.5 percent of the employee’s household income.
MEC reporting includes data on each employee and their dependents, whether they are eligible for employer-sponsored plans, government-sponsored programs, individual market plans and other miscellaneous coverage. Eligible employer-sponsored group coverage includes COBRA coverage and retiree coverage.
MEC does not include coverage consisting solely of excepted benefits, including separate vision and dental coverage, workers’ compensation, and specified disease or illness coverage. No reporting is required for Health Reimbursement Arrangements (HRAs) integrated with group health plans that provide MEC, on-site medical clinics, or wellness programs that provide reduced premiums or cost-sharing under the group health plan.
However, while retiree HRAs may be exempt from annual and lifetime limits, if they provide MEC, reporting obligations for section 6055 exist. Remember, this information is being used to determine if an individual is eligible for the premium tax credit if they purchase coverage at the Marketplace.
If additional or supplement benefits are not MEC or are excepted benefits, they are not required to file. An example of excepted benefits would include on-site medical clinics or health flexible spending accounts (FSAs) within a cafeteria plan.
Who must report?
Health insurers for all insured coverage or plan sponsors (generally the employer) are responsible for reporting for self-insured health coverage. In fact, every person that provides MEC coverage to an individual during a calendar year must file a form, regardless of size. That means that even “small” employers, with fewer than 50 employees, must file if they sponsor a self-insured health plan. And government employers must also report under section 6055 if they maintain self-insured health plans.
Forms required for filing include Form 1095-B (Health Coverage) and Form 1094-B (Transmittal). However, employers subject to shared responsibility provisions (ALEs) sponsoring self-insured group health plans will report information about coverage in Part III of Form 1095-C instead of Form 1095-B.
Statements to employees may be a copy of the IRS return or a substitute. In order for statements to be sent to employees in an electronic manner, the employer needs confirmative consent from the employees.
Information required for Form 1095-B
- Name, Address, and SSN of everyone covered. Date of birth may be provided if SSN not available, plus SHOP Marketplace identifier, if applicable.
- General information for coverage provider.
- Months of coverage for each individual (1 day of coverage equals coverage for the entire month).
- Employer identity.
ALE Reporting
ALEs, employers with at least 50 full-time employees (working an average of 30 or more hours per week) on business days in the prior calendar year—including full-time equivalent employees—must offer all full-time employees, plus their dependents, health insurance within a specified period of time that provides minimum value (MV) and is affordable, to meet the requirements for minimum essential coverage (MEC). The information contained in this filing helps the IRS determine eligibility for premium tax credits for qualified health plans (QHPs) purchased at the Marketplace and whether 4980H penalties are assessable under the employer shared responsibility provisions and in what amount. ALEs are subject to the employer shared responsibility provisions under Code Section 6056.
What about Health Reimbursement Arrangements (HRAs)? Code Section 6055 does not require separate reporting for coverage that supplements the employer’s primary plan. The same exception does not appear in the regulations under Code section 6056.
Who must report?
Employers subject to the employer shared responsibility provisions under Section 4980H must file information forms for each employee who was a full-time employee of the employer for any month of the calendar year.
Employers that provide health coverage through an employer-sponsored self-insured health plan must complete Form 1095-C, Parts I and III, for any employee who enrolls in the health coverage, whether or not the employee is a full-time employee for any month of the calendar year. If the employee is a full-time employee for any month of the calendar year, the employer must also complete Part II.
Forms required for filing include Form 1095-C (Health Insurance Offer and Coverage) and Form 1094-C (Transmittal). As stated above, employers subject to shared responsibility provisions (ALEs) sponsoring self-insured group health plans will report information about coverage in Part III of Form 1095-C instead of Form 1095-B.
Statements to employees may be a copy of the IRS return or a substitute. If statements are sent to employees in an electronic format, the employer needs confirmative consent to provide statements electronically to employees.
Information required for Form 1095-C
- Name, address, and employer identification number (EIN ) of the provider, along with contact phone number.
- Employee’s name, address and SSN or date of birth if SSN is not available.
- Names and SSNs or dates of birth of each individual enrolled in coverage and entitled to receive benefits.
- Employer Offer and Coverage informational codes for offer of coverage, share of lowest cost monthly premium for self-only coverage of MEC, and applicable Section 4980H Safe Harbor (if applicable).
- Number of covered months for each employee and covered individual.
All this information will be compared to who enrolled in Marketplace coverage and received a premium tax credit.
When are the forms due?
Originally, reporting was required for insurance plans, whether calendar-year or fiscal-year, starting on or after January 1, 2014. Reporting would have been due in early 2015. However, this reporting requirement was delayed for one year. Information gathering needed to start January 1, 2015 with reporting forms due in early 2016, similar to W-2 deadlines. This is calendar-year reporting with no special deadlines for non-calendar year plans. In addition, electronic filing is required of all forms if 250 or more returns are contained in one filing.
Penalties for Noncompliance
The ALE Form 1095-C is designed to be used in determining whether an employer owes payments under the employer shared responsibility provisions of Section 4980H. Even one full-time employee that purchases coverage at the Marketplace and receives a subsidy can trigger a penalty.
It is not within the scope of this article to provide all the nuances of counting full-time and part-time employees, whether employees were timely offered coverage, whether MEC was provided in the employer’s health plans or all transition rules. A simple calculation is provided for illustration purposes only.
If an ALE does not offer MEC to 95 percent (first year transition rate will be 70 percent) or more of all full-time employees and their dependents, a sample of the “subsection (a)” penalty would be:
- $2,000 times all full-time employees, minus a count of 30 employees (first year transition rate will be minus a count of 80 employees).
If an ALE does not offer affordable coverage that provides minimum value, and at least one full-time employee is certified as having purchased health insurance through an Exchange and received a premium tax credit, a sample of the “subsection (b)” penalty would be:
- $250 (1/12 of $3,000) times the number of full-time employees for any month who received premium tax credits (not to exceed (a) penalty amount). Generally, no penalties for smaller employers.
If employers have not already started to count their full-time employees and created a data-gathering plan in order to complete and file Forms 1095-B and 1095-C, now is the time for them to seek competent counsel and take action.
Late-breaking News
On July 2, 2015 it was announced that extensions of time will be available for filing information returns with the IRS and furnishing ACA statements to payees. The extension of the deadline to furnish the ACA forms to employees will be noted in an upcoming revision to the IRS Publication 1220.
This extension is requested by submitting a letter to the IRS that contains certain information. The extension is not automatic and, if approved, will allow for a maximum of 30 additional days from the original due date.
The information contained in this article is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations.
