The Affordable Care Act’s Reporting Requirements
By Boyd E. Chapin, III
The Patient Protection and Affordable Care Act (“ACA”) commonly known as “Obamacare” created new reporting obligations in 2015 requiring most employers to report certain information to the Internal Revenue Service (“IRS”) about each of its full-time employees, including whether it offered the employees and their dependents the opportunity to enroll in health coverage. The extent and nature of the reporting obligations vary, depending in large measure upon whether the employer is considered an applicable large employer (“ALE”). An ALE is an employer with an average of 50 or more full-time and full-time equivalent employees in the previous calendar year.
These new reporting obligations require employers and other entities to report information to assist the IRS with enforcing the individual mandate (i.e., the requirement for individuals to maintain minimum essential health care coverage) as well as the employer mandate (i.e., penalties that are imposed on certain employers if minimum health insurance coverage is not offered by the employer).
In order to monitor compliance with both the individual and employer mandates, the ACA requires reporting by employers and insurers. To understand these reporting obligations, one must understand the general manner in which both the individual mandate and the employer mandate operate.
I. Individual Mandate
Under the ACA, all individuals must have minimum essential health care coverage (“minimum essential coverage”). Individuals have “minimum essential coverage” if they have (i) an individual health insurance policy bought through the Health Insurance Marketplace or other approved sources, (ii) job-based coverage, (iii) coverage through Medicare, (iv) coverage through Medicaid, (v) coverage through CHIP, (vi) coverage through TRICARE, or (vii) certain other approved health insurance coverage.
If an individual does not have minimum essential coverage, the IRS will collect a tax penalty from him or her. The monthly tax penalty is equal to 1/12th of the greater of:
- For 2015: $325 per uninsured adult in the household (capped at $975 per household) or 2.0 percent of the amount by which the household income exceeds the filing threshold (e.g., single person making more than $10,150 in 2015 must file a tax return).
- For 2016: $695 per uninsured adult in the household (capped at $2,085 per household) or 2.5 percent of the amount by which the household income exceeds the filing threshold.
II. Employer Mandate
The ACA does not require employers to offer health insurance to their employees. However, an employer with 50 or more full-time employees may face penalties if such employer does not provide health insurance coverage that both is affordable and provides minimum value to its full-time employees and their children up to age 26. For employers with 50 to 99 full-time employees, this penalty is effective for the first plan year beginning on or after January 1, 2016.
A. How is “affordable” coverage determined?
Coverage is considered “affordable” if an employee’s contributions for “employee only” health insurance coverage do not exceed 9.5% of an employee’s household income. There are three safe harbor methods for determining affordability:
- 9.5% of an employee’s W-2 wages (such wages amount being net of any salary reductions under a 401(k) plan or cafeteria plan)
- 9.5% of an employee’s monthly wages (hourly rate x 130 hours per month)
- 9.5% of the Federal Poverty Level for a single individual
B. How does an employer determine if its group health plan provides “minimum value”?
A group health plan provides “minimum value” if it is designed to pay at least 60% of the total cost of medical services for a standard population, and if its benefits include substantial coverage of inpatient hospital and physician services. The United States Department of Health and Human Services has developed a minimum value calculator that can be used to determine if a group health plan provides “minimum value.”
In order to monitor compliance with both the individual and employer mandates, the ACA requires reporting by employers and insurers. The reporting requirements require that an information return (Form 1095-B or 1095-C) will be prepared for each applicable employee with respect to the applicable calendar year, and these returns will be filed with the IRS using a single transmittal form (Form 1094-B or 1094-C).
Form 1095. It is distributed to employees and explains their medical coverage. Under IRS Notice 2016-4, the deadline to furnish Form 1095 to employees has been extended from February 1, 2016, to March 31, 2016.
Form 1094. It is similar to a cover sheet and is used to transmit copies of the employer’s Form 1095s to the IRS. Form 1094 includes some additional information to aid the IRS in looking at an employer’s ACA compliance. The deadline for Form 1094 has been extended from February 29, 2016 to May 31, 2016 (if filing paper) and extended to June 30, 2016, if filing electronically.
A. Code section 6055 reporting: This section requires various “reporting entities” (including employers and insurers) to report information for each individual that is provided minimum essential coverage by the “reporting entity.” The IRS is expected to use this information to enforce the individual mandate.
1. What to Report
“Reporting entities” subject to Section 6055 reporting must include the following in the report to the IRS:
- Name of each individual who has minimum essential coverage (including covered spouse and dependents);
- Name and address of the “responsible person” through whom the individual has coverage (generally the primary participant, employee, or applicant);
- Taxpayer identification number (TIN, which is generally the Social Security Number) for each covered individual, including covered spouse and dependents; and
- Calendar months for which each individual was covered during the calendar year.
The employer must make an initial attempt to collect the TIN for covered dependents (e.g., at enrollment) and two subsequent annual TIN solicitations. The plan can report a birth date if reasonable efforts to obtain the TIN fail. In addition, employers only need to report the last known address for the “responsible person.”
2. Who Must Report
For a self-insured group health plan sponsored by a single employer, the plan sponsor is the reporting entity. The regulations indicate that each member of a control group is treated as a plan sponsor so that each is separately liable for timely and correct reporting. However, one member of a control group may file returns on behalf of all members of a control group. It is anticipated that the third party administrator who is handling the self-insured group health plan will include complying with this reporting obligation as part of its administrative services. But an employer with such a self-insured group health plan would be wise to get written confirmation from the respective third party administrator that the administrator will be taking care of the reporting and should monitor that the reporting is being made timely and appropriately.
For fully-insured group health plans (or fully-insured components of group health plans), the insurance carrier is the reporting entity, not the employer.
B. Code section 6056 reporting: This section requires ALEs that are subject to the employer mandate penalties to report information on the coverage offered to full-time employees. The IRS will use the information to enforce the employer mandate.
The 6056 reporting requirements apply separately to each ALE member. For example, if an ALE is comprised of a parent corporation and five wholly-owned subsidiary corporations, there are six ALE members (the parent corporation and each of the five subsidiary corporations). Therefore, each ALE member must file separate returns under section 6056 for its full-time employees.
1. What to Report
An ALE must report:
- Name, address and employer identification number (EIN) of the ALE;
- Name and telephone number of a contact person;
- Calendar reporting year;
- Certification as to whether the ALE offered its full-time employees and their dependent children the opportunity to enroll in minimum essential coverage by calendar month;
- Number of full-time employees for each month in the calendar year;
- For each full-time employee, the months for which minimum essential coverage was made available;
- For each full-time employee, the employee’s share of the lowest-cost monthly premium for “employee-only” coverage providing minimum value, by calendar month; and
- Name, address and TIN for each full-time employee, and the months, if any, for which the full-time employee was covered under an employer-sponsored plan. (This information would be the same as data provided for Section 6055 reporting.)
2. Who Must Report
Section 6056 reporting requires ALEs to file a return with the IRS and to send a statement to each full-time employee. ALEs may contract with third party administrators for Section 6056 reporting, but continue to remain liable for failing to report.
The penalties for failing to timely issue, transmit, or provide accurate information are significant. A penalty of $250 per return applies to failures to timely furnish correct statements to employees, and another $250 penalty applies for failure to timely file accurate returns with the IRS, subject to a $3 million maximum per year for each type of penalty (furnishing and filing). However, the maximum of such penalties may be disregarded when an employer intentionally disregards the requirement to furnish a statement to an individual.
V. What Can Employers Do to Prepare?
Although the first statements and returns required by sections 6055 and 6056 (which relate to calendar year 2015) are not due until March 31, 2016, employers (and other reporting entities) should have begun making arrangements for compliance in 2015 and certainly as early as possible in 2016. Decisions must be made, such as, how to collect certain information employers may not already have on file (such as SSNs), whether to provide statements electronically, and how to develop processes to obtain consent for electronic disclosure. Employers have a great deal of work to do in preparation for the new ACA reporting requirements and should consider assistance from the following areas:
- Information Technology – to ensure that all the required data is accessible;
- Finance – to budget and allocate compliance resources needed;
- Legal – to interpret and apply the regulations;
- Human Resources – to make decisions regarding employee scheduling and monitoring hours over 30 hours per week;
- Payroll – to track hours (to identify full-time employees) and calculate affordability; and
- Benefits – to develop plan design, eligibility, and communications to employee