The Affordable Care Act (ACA) has many facets which build upon one another, but with a deadline rapidly approaching, a key element is the reporting requirements for “applicable large employers” (ALEs). However, before you can decide which forms to file and which party is responsible, employers must first determine their coverage offerings and how many workers they employ, which this article will explain how to do as well as detail the reporting requirements. The ACA reporting rules are quite complex and are designed to report relevant information in order to substantiate compliance with the individual and employer mandates of the ACA. The business structure of the employer, the size and components of its workforce, and the design of the employer-provided health coverage or coverages available to employees will all be factors in determining the correct methodology in order to ensure proper compliance with these rules.
Coverage offering and number of employees
If you are an employer with more than 50 full-time employees or full-time equivalent (FTE) employees, you are considered to be an ALE under the ACA. ALEs must offer affordable “minimum essential coverage” (MEC) to at least 95 percent of FTEs or the employer is liable for the employer shared responsibility payment, informally known as the employer mandate or the “pay-or-play rules.” For 2015 only, an ALE is an employer with 100 or more FTEs and offers MEC to at least 70 percent of them; however, to qualify for this relief, the employer cannot have reduced its workforce size or hours requirements or eliminated healthcare coverage solely to avoid the mandate. Midsized employers with 50 to 99 full-time employees will not be subject to the employer mandate until 2016 so long as the employer provides an exemption certification to the IRS. Employers with non-calendar year plans are subject to the employer mandate based on the start of their 2015 plan year rather than on Jan. 1, 2015.
An FTE is an employee working more than 30 hours per week. With three methods available to compute the number of FTEs, the employer has some flexibility in calculating the number of individuals employed. An employer can use the actual hours of service determined from the records of hours worked (such as timesheets); use a days-worked equivalency where an employee is credited with an eight-hour day for each day paid; or a weeks-worked equivalency where the employee is credited with a 40-hour workweek for each week paid. Special rules apply for employers using seasonal or hourly labor, educational organizations, leaves of absence, expatriates, and new entities.
Total employees include common law employees who may currently be treated as independent contractors or staffing agency individuals. The IRS has a 20-factor test that assesses the business relationship between employers and their workers. Employers should review the degree of behavioral and financial control and independence between the company and its workers. Then, review contracts and language to ensure these are supporting independent contractors not considered common law employees. The 95 percent test is calculated on a monthly basis so it is important to begin this analysis soon.
In certain cases, human resource departments may deal with employees but may not be aware of departments using independent contractors or employee staffing agencies. Employers should review agreements and stipulate whether the employer/independent contractor or staffing agency will offer healthcare coverage.
The presence of related entities may also affect whether the employer is considered an ALE. If your business is part of a group of entities under common ownership or control, then employees from each entity within the group, including union employees, must be aggregated to determine whether the group is considered an ALE.
Minimum essential coverage
Employer-provided healthcare must offer certain essential health benefits and limit cost-sharing. Four medal levels of coverage are available: bronze, silver, gold, and platinum plans, allowing for 60 percent to 90 percent of benefits coverage. The employee share of this coverage must not exceed 9.5 percent of income, and the plan itself must cover at least 60 percent of the total allowed costs under the plan. MEC includes employer-sponsored coverage (including COBRA and retiree plans), individual coverage, Medicare, Medicaid, Children’s Health Insurance Program (CHIP), certain veterans’ health coverage, and TRICARE.
In order for the IRS to determine who is responsible for the individual or employer mandates, it must rely upon information reported from employers, insurance companies, the exchanges, and other sponsors of coverage. For employers to gather the necessary information for the reports, there must be careful coordination among the payroll, human resources, and benefits departments because some of the required data is probably housed within each department. To the extent employers use union labor in a multiemployer plan setting, coordination between the business and the union is critical in understanding who is responsible for the reporting. Also, employers that self-fund their insurance plans have different reporting requirements from those that are fully insured, where the insurance carrier plays a more active role in the process.
Penalties associated with information reporting (including ACA forms) have doubled or even tripled as part of the trade bill recently enacted into law, so it is even more important to accumulate the proper data in a timely manner. The taxpayer penalty cap increased for failure to file correct information returns and failure to furnish correct payee statements to $3 million from $1.5 million. The amount for each individual failure increased to $250 from $100. Lower penalty caps for when the penalty is corrected within 30 days or before Aug. 1 have also doubled and trebled to $500,000 and $1.5 million, respectively. Lower limitations for persons with gross receipts of $5 million or less have also been raised. The penalty amounts are indexed for inflation.
Coverage reporting forms
The IRS has created several new forms to assist employers in meeting their reporting obligations under ACA:
- Form 1095-B, Health Coverage
- Form 1095-C, Employer-Provided Health Insurance Offer and Coverage
- Form 1094-B, Transmittal of Health Coverage Information Returns
- Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns
The marketplace (i.e., the federal and state exchanges) will report MEC to individuals enrolled in qualified health plans on Form 1095-A (which will not be covered in this article). Government-sponsored MEC (such as Medicare, Medicaid, CHIP, etc.) will be reported by the respective federal or state agency administering such coverage. The appropriate forms for 2015 reporting are due by Feb. 1, 2016, (Jan. 31 falls on a Sunday) to MEC participants and Feb. 28, 2016, (or March 31, 2016, if electronically filing) to the IRS. The IRS has indicated an automatic 30-day extension to file these ACA reports may be requested using Form 8809. A detailed explanation as to why an extension is needed is required to apply for additional time.
Employers and/or insurance companies will prepare Form 1095-B to report information to the IRS about individuals who are covered by MEC and therefore not liable for the individual shared responsibility payment (a.k.a. individual mandate). Filers of 250 or more information returns must file these electronically. In general, health insurance issuers or carriers will prepare and file 1095-B forms for all fully insured employer coverage. Employers offering self-insured coverage that do not meet the employer mandate requirements as an ALE will also use the 1095-B forms to report coverage.
In lieu of Form 1095-B, ALEs offering self-insured coverage will use Form 1095-C to report information about the coverage provided to each non-union employee. Contributing employers in a multiemployer plan will also use Form 1094-C and an indicator code identifying the employer as a participant in such a plan. Full-time employees and non-union individuals covered under the self-insured plan will receive a Form 1095-C from the employer, and union individuals covered under the multiemployer plan will receive a Form 1095-B from the union plan sponsor.
|Form 1095-B – Health Coverage||Form 1095-C – Employer-Provided Health Insurance Offer and Coverage|
|Part I||Responsible Individual||Employee & Applicable Large Employer Member (Employer)|
|Part II||Employer Sponsored Coverage||Employee Offer and Coverage|
|Part III||Issuer or Other Coverage Provider||Covered Individuals|
|Part IV||Covered Individuals||N/A|
Information required to be collected includes:
- Name, address, and employer identification number of the MEC provider
- The responsible individual’s name, address, and taxpayer identification number (TIN)
- The name and Social Security number of each individual covered under the policy or plan
- Date of birth is allowed if the Social Security number is not available
- Each month the individual was enrolled and entitled to receive benefits
- The employee’s share of the monthly premium for the lowest-cost minimum value health coverage offered
- Whether the employee was a full-time employee each month
- The affordability safe harbor applicable for the employee
- Whether the employee was enrolled in the health plan
- The name, address, and TIN of the employer sponsoring the plan, whether the plan is a qualified plan enrolled in SHOP, and the SHOP identifier
In many cases, employers may not have the Social Security numbers for dependents of employees. Steps should be taken now to gather those and any other missing data. Also, safeguards should be taken to reduce the potential for stolen identification.
Form 1094-B is the transmittal for the forms 1095-B filed by the employer or sponsor of the health coverage. The name and contact information of the responsible individual, address of the filer, and total number of 1094-Bs filed will be reported.
ALEs will file Form 1094-C as the transmittal for the required 1095-C forms. Form 1094-C must contain aggregate employer data for all full-time employees; including a certification by month as to whether the employer offered its full-time employees (and their dependents) the opportunity to enroll in MEC as well as the number of full-time employees per month of the calendar year. The total number of employees must also be reported on a monthly basis. This form helps the IRS determine whether the employer is subject to the employer mandate penalty and the proposed penalty amount.
Multiple transmittal forms may be filed (for example, if an employer has multiple categories of plans or employees where separate reporting is needed); however, in these cases, an authoritative transmittal would also be filed (by checking the box on line 19 of part 2) summarizing data for all other 1094-Cs filed. If the employer is part of an affiliated group, the names, addresses, and TINs of the other members are reported as well.
Although members of an ALE group with fewer than 100 full-time employees are generally eligible for transition relief from the employer mandate for 2015, these employers are still required to file the necessary reporting forms mentioned above. While compliance for the ACA employer mandate is deferred for employers with between 50 and 100 full-time (or FTE) employees, these same employers have to certify on the 2015 Form 1094-C that it employs a limited workforce within this range. It must also certify that, between Feb. 9, 2014, and Dec. 31, 2014, the ALE did not reduce the size of its workforce or the overall hours of its employees in order to meet the transition deferral guidelines.
Other reporting situations
Each employer within a controlled group/affiliated service group qualifying as an ALE (ALE Member) is required to file Forms 1094-C and 1095-C for its own employees, even if it participates in a health plan with other employers, such as when a parent company sponsors a plan in which its subsidiaries participate. Special rules apply to governmental entities and to multiemployer plans for collectively bargained employees. Companies with multiple divisions or payroll centers may elect to file a Form 1094-C for each division or payroll center. In the latter case, a summary Form 1094-C must then be filed to aggregate all employer-level data for all the employer’s full-time employees (the authoritative transmittal mentioned earlier).
Action item: These forms require MEC reporting on a monthly basis. As a result, employers and sponsors of MEC should begin gathering the necessary data as quickly as possible. We have provided the following action plan to help you pull together this information.
- Review whether you are considered an ALE and if you qualify for the one-year deferral.
- Perform a controlled group/affiliated entity analysis by reviewing ownership structures of related entities to determine ALE status.
- Study the applicable 1094 and 1095 series forms and instructions.
- Determine and document each employee’s full-time (or non-full-time) status by month.
- Collect information on employee offers of health coverage and health plan enrollment by month.
- Confirm responsibility for data collection and for preparation. This could be the employer, the health insurance company, the payroll provider, or a third-party administrator.