Self-insured employers and health insurers must file new health plan coverage information with the Internal Revenue Service (IRS) annually, beginning in early 2016, covering the 2015 calendar year. A copy of the taxpayer-specific information filed with the IRS must also be provided to each taxpayer (i.e., employee). The new information-filing requirements, under IRC Sections 6055 and 6056, were added to the federal tax code by the Patient Protection and Affordable Care Act (PPACA). Self-insured employers are legally responsible to file information on their employees, while health insurers (called “issuers” under the regulation) must file on insured group health plan coverage provided to employees and others. Employers and insurers may use third parties to perform the tasks involved but remain responsible for the filing, with enforcement penalties under the tax law. The information is central to IRS enforcement of the PPACA’s individual mandate, the employer play-or-pay mandate and the administration of federal premium assistance tax credits for certain low- and middle-income taxpayers who purchase coverage in the public health insurance exchanges. Self-insured employers, record keepers and insurers will be challenged to collect, compile and report this new information, and will be burdened by the new costs these requirements will impose. The new IRS filing requirements under Sections 6055 and 6056 also apply to multiemployer plan trustees for multiemployer plans, to governmental employers for their employee plans, and to various state and federal agencies with respect to Medicaid, Medicare, TRICARE, CHIP and other government coverage.
KEY ACTION ITEMS
Self-insured employers and others responsible to file under the proposed regulation should do the following:
- Review and understand the proposed IRS information-reporting regulations.
- Estimate the operational impact and IT resources needed, either directly or from record keepers and other vendors, to satisfy the proposed reporting requirements.
- Consider filing comments with the IRS by the November 8, 2013 deadline regarding the impact of the reporting requirements and any ideas for reducing this burden. The IRS has set public hearings on the proposed regulations for November 18, 2013 (on Section 6056), and on November 19, 2013 (on Section 6055), in Washington, D.C. Requests to speak at either hearing must be received by the IRS by November 8, 2013.
- Begin working with their IT and payroll departments, and with third-party administrators and record keepers, to ensure the employer will meet the reporting requirements of Sections 6055 and 6056 for data covering the 2015 calendar year.
Self-insured employers and others responsible to file under the proposed regulations must begin by filing information covering the entire 2015 calendar year. The information covering 2015 is due to the IRS generally by March 31, 2016, if filed electronically (otherwise by February 28). A copy of the taxpayer-specific information covering 2015 must be provided to each taxpayer by January 31, 2016. This timing applies both for calendar-year health plans and for non-calendar-year (fiscal year) health plans (i.e., employers with non-calendar-year plans will need to submit information drawn from portions of two plan years). The IRS is encouraging self-insured employers, insurers and others responsible for filing to consider doing so with respect to information covering 2014. However, this is not mandatory, and no penalties will apply in connection with the 2014 calendar year.
Individual mandate. Beginning in 2014, the PPACA’s individual mandate will generally require U.S. citizens and legal residents of the U.S. to either maintain minimum essential coverage for themselves and their tax dependents, or else pay a penalty tax when filing their income tax returns. Exemptions will apply for certain individuals.
Minimum essential coverage satisfying this requirement will include:
- Health insurance coverage sold in the individual market, such as a qualified health plan offered through a public exchange (also known as a “marketplace”)
- An employer-sponsored health plan (insured or self-insured)
- Government-sponsored programs (e.g., Medicare Part A, Medicaid, CHIP, TRICARE)
Premium assistance tax credit. Beginning in 2014, taxpayers with household income up to 400% of the federal poverty level will generally be eligible for a federal premium assistance tax credit for individual coverage purchased in a public health insurance exchange (also called a “marketplace” in some taxpayer communications). Taxpayers will be ineligible for a tax credit, however, for any month that their employer offers them minimum essential coverage that is both affordable (i.e., the employee-required contribution for the lowest-cost employee-only coverage is at or below 9.5% of the employee’s household income) and of minimum value (60% actuarial value).
Employer play-or-pay mandate. Beginning in 2015, the PPACA’s employer play-or-pay mandate will generally require applicable large employers (i.e., those generally averaging at least 50 full-time-equivalent employees in the prior year on a controlled-group basis) to either offer full-time employees and their children up to age 26 minimum essential coverage that is both affordable and of minimum value, or else pay a penalty tax to the IRS.
To enforce and administer these mandates and the premium assistance tax credit, the IRS will need extensive information about taxpayers’ health coverage. For this purpose, Congress added Sections 6055 and 6056 to the federal tax law as part of the PPACA. The following material summarizes the IRS’s two new proposed regulations under these two code sections. The proposed regulations appeared in the Federal Register dated September 9, 2013.
BACKGROUND — IRC SECTION 6055
To administer the individual mandate, Section 6055 requires information reporting by any entity that provides minimum essential coverage to an individual. Specifically, the statutory provisions of Section 6055 require providers of minimum essential coverage (generally insurers for insured coverage and employers for self-insured employer coverage) to report annually to the IRS:
- The name, address and taxpayer identification number (TIN) of the primary insured
- The name, dates of coverage and TIN of each individual covered under a policy
- Whether health insurance coverage is a qualified health plan offered through a public exchange
- For a qualified health plan, the amount of any advance payments of the premium tax credit and cost-sharing reductions provided to the individual
- Other information the Treasury Secretary requires
If minimum essential coverage is provided through an employer’s group health plan, the statute also requires the reporting to include:
- The name, address and employer identification number (EIN) of the employer maintaining the plan
- The portion of the premium (if any) paid by the employer
- Any other information that the Treasury Secretary requires for administering the tax credit for employee health insurance expenses of small employers (under IRC Section 45R)
A copy of the information that was filed with the IRS on a taxpayer also must be provided to that taxpayer, along with the name, address and contact phone number of the entity that reported the information to the IRS. This statement must be furnished to the taxpayer by January 31 of the year following the coverage year (e.g., by January 31, 2016, for the 2015 year). The information will allow taxpayers to establish, and the IRS to verify, that the taxpayers were covered by minimum essential coverage and their months of enrollment during a calendar year.
The proposed regulation interprets, implements and, in some respects, modifies the above statutory requirements of Section 6055. Key provisions of the Section 6055 proposed regulation include the following:
Who is responsible for Section 6055 reporting for various types of coverage?
Individual market-qualified health plans sold in the public exchange. The exchanges will provide the required information to the IRS (and to taxpayers) for individual market-qualified health plans sold in the public exchanges. The exchanges bear this responsibility as part of their duties under the federal premium assistance tax credit in IRC Section 36B(f)(3). Consequently, health insurance issuers (i.e., insurers) will not be required to submit the Section 6055 information for individual market-qualified health plans sold in a public exchange. Issuers will, however, be required to report the Section 6055 information to the IRS and to taxpayers on small group market-qualified health plans sold in the Small Business Health Options Program (SHOP), which are part of the public exchanges.
Employer-sponsored insured group health plans. Health insurance issuers (insurers) will be required to report the Section 6055 data for insured coverage, such as insured employer-sponsored group health plans, sold outside the exchanges. Consequently, employers have no Section 6055 reporting responsibilities for insured group health plans.
Self-insured group health plans:
- Single-employer, self-insured group health plans. For such plans, employer plan sponsors will be responsible for reporting under Section 6055. Where a single employer is part of a controlled group of corporations, each separate employer entity is responsible to report for its employees; however, one member of the group may assist the other members by filing returns and furnishing statements on behalf of other members of the controlled group.
- Multiemployer health plans (i.e., Taft-Hartley plans). For such plans, the joint board of trustees, association, committee or other similar group will be responsible for reporting under Section 6055.
- Government employers. A government employer providing self-insured coverage for its employees will be required to report the Section 6055 information, or it may designate another unit, agency or instrumentality of that government employer as the reporting entity (e.g., federal government may designate FEHBP).
Rules to avoid duplicative reporting and otherwise simplify reporting under Sections 6055 and 6056. Separate from Section 6055 reporting, the new Section 6056 requires applicable large employers to report additional information about the coverage that they offer to their full-time employees and furnish related statements to employees. The IRS and the Treasury Department are considering permitting applicable large employers with self-insured plans that provide mandatory minimum value coverage to employees, and offer that coverage to spouses and dependents, all with no employee contribution, to forgo providing Section 6056 statements to those covered employees. This exception from Section 6056 reporting would apply to relatively few large employers, as most large employer plans are contributory and thus would be ineligible for this exception. Nevertheless, the proposed regulations allow the use of substitute forms and statements to individuals, which may permit self-insured health plans to furnish a single substitute statement to covered individuals for both Sections 6055 and 6056.
Third-party reporting permitted. Third parties, such as third-party administrators (TPAs) and record keepers, may file Section 6055 returns and furnish statements to taxpayers on behalf of health insurance issuers, employers or other reporting entities. Such arrangements will not, however, transfer the potential liability for failure of the insurer or employer to report and furnish the information required under the regulation.
Foreign employers that provide minimum essential coverage. Section 6055 requires that reporting for coverage under a group health plan must include the employer’s EIN, but foreign employers providing minimum essential coverage may not have an EIN. Consequently, the IRS seeks comments on rules for reporting by foreign employers without EINs that sponsor self-insured plans and on any other issues specific to reporting coverage provided by foreign employers.
Government-sponsored programs. The executive department or agency of a governmental unit that provides coverage under a government-sponsored program is responsible for reporting under Section 6055 (e.g., the Department of Defense is responsible for reporting coverage under the TRICARE program). Likewise, the relevant state agency that administers the Medicaid or CHIP program at the state level, rather than the federal Department of Health and Human Services, must report the Section 6055 data for those programs. Under the proposed regulation, the responsible government department or agency (and not the health insurance issuer) must report the Section 6055 information for coverage under a government-sponsored program that is provided through a health insurance issuer (e.g., the Centers for Medicare & Medicaid Services [CMS] is responsible for reporting to the IRS on privately insured Medicare Part D programs, not the insurer).
Other arrangements designated as minimum essential coverage. CMS will be responsible for reporting on privately insured Medicare Advantage programs (Part C), not the health insurance issuer (i.e., insurer). The IRS seeks public input on an appropriate reporting entity for other arrangements that have been designated as minimum essential coverage, including:
- Self-funded student health coverage for plan or policy years beginning on or before December 31, 2014
- Refugee Medical Assistance supported by the Administration for Children and Families
- State high-risk pools for plan or policy years beginning on or before December 31, 2014
What information must be reported to the IRS under Section 6055?
Required information. In general, the returns required by Section 6055 must report the following information for the calendar year of coverage:
- The name, address and EIN for the person required to file the return
- The name, address and TIN, or date of birth if a TIN is not available, of the responsible individual (e.g., primary insured, employee, former employee)
- The name and TIN, or date of birth if a TIN is not available, of each individual covered under the policy or program
- For each covered individual, the months for which, for at least one day, the individual was enrolled in coverage and entitled to receive benefits
- Any other information specified in forms, instructions or published guidance
In addition, with respect to insured employer-sponsored group health plan coverage, information returns reporting minimum essential coverage provided under an insured group health plan coverage must also include the following information:
- The name, address and EIN of the employer sponsoring the plan
- Whether the coverage is a qualified health plan enrolled in through SHOP and SHOP’s unique identifier
- Other information specified in forms, instructions or published guidance
To reduce the cost and administration of the reporting requirements, the proposed regulation does not require reporting the portion of the premium paid by an employer, as is required by the statute. The IRS does not need this information to determine if an individual is covered by minimum essential coverage. In addition, the proposed regulation requires reporting the months of coverage rather than the specific dates of coverage, because minimum essential coverage applies month by month. Furthermore, the proposed regulation does not require reporting the amount of any cost-sharing reductions, because these are not administered by the IRS. Finally, the proposed regulation does not require reporting the amount of advance payments or on coverage in a qualified health plan in the individual market enrolled in through an exchange, since in both cases, this information is reported to the IRS and provided to individuals by the exchanges under Section 36B(f)(3).
Collection of dependents’ TINs and addresses of individuals living abroad. Some health insurance issuers and self-insured employers don’t collect TINs (e.g., social security numbers) from covered dependents. Despite these and other challenges, the proposed regulation adopts mandatory TIN reporting, consistent with the statute. Reporting entities (e.g., health insurance issuers, self-insured employers) that make a reasonable effort to collect TINs but do not receive them will not, however, be subject to penalties. Reasonable effort means attempting to re-solicit a TIN after an initial, unsuccessful request for a TIN (for example, at the time of enrollment) and then making two consecutive annual TIN solicitations. Finally, the proposed regulation allows for reporting the date of birth if a TIN is not available. This alternative should not be used, however, unless the reporting entity has made a reasonable effort (as above) to obtain the TIN. In addition, health insurance issuers and self-insured employers may have difficulty obtaining overseas addresses for individuals living abroad. The proposed regulation says that only the last known address for the responsible individual must be reported.
Coverage dates. For purposes of the individual mandate, someone has minimum essential coverage for the entire month if they have coverage on any day in a month. Thus, the proposed regulation does not require reporting the specific dates of coverage. Instead, it is sufficient to report the months during which an individual is considered to have had minimum essential coverage.
Supplemental coverage arrangements (HSAs and HRAs). A health savings account (HSA) is not minimum essential coverage, and therefore Section 6055 reporting is not required for them (although reporting is required for the corresponding high-deductible health plan [HDHP]). Under the proposed regulation, reporting is not required for a health reimbursement arrangement (HRA) that supplements minimum essential coverage.
When and how is the Section 6055 filing made?
IRS Form 1095-B. The return filing under Section 6055 may be made on IRS Form 1095-B (or another form the IRS designates, or on a substitute form subject to IRS rules for substitute forms). The return will be submitted with a transmittal form, IRS Form 1094-B. A draft version of these forms will be available at a later date.
Timing for filing returns to IRS. Health insurance issuers or self-insured employers (i.e., reporting entities) must file the return and transmittal form on or before February 28 (or March 31 if filed electronically) of the year following the calendar year in which they provided minimum essential coverage. This will be the case regardless of whether the plan is a calendar-year plan or a non-calendar-year (fiscal-year) plan. The first filing will be due on February 28, 2016, with respect to the 2015 calendar year. Any reporting entity may file electronically under Section 6055.
Potential for combined reporting. As noted, applicable large self-insured employers (50 or more full-time-equivalent employees) are subject to the reporting requirements of both Sections 6055 and 6056, along with the requirement to file Form W-2, Wage and Tax Statement. The IRS seeks comments on how to minimize duplication in reporting under these provisions. The IRS says future guidance may include a means of filing a single statement covering both Sections 6055 and 6056; however, that option is not offered in the proposed regulation.
What is the Section 6055 statement to be furnished to individuals?
Required information. Reporting entities must furnish a statement to the responsible individual (e.g., primary insured, employee, former employee) with the policy number (if applicable) and the name, address and a contact number for the reporting entity, along with the coverage information that is required to be reported to the IRS under Section 6055 (see above). A single substitute statement that includes the information required by both Sections 6055 and 6056 may be permitted by future guidance.
Electronic delivery of statements to individuals. The proposed regulation permits electronic delivery of statements to individuals if the recipient consents. While the rules require furnishing a statement to each individual, the proposed regulation permits furnishing only one statement per address. Also, to protect the privacy of covered individuals, statements furnished to individuals under Section 6055 are not required to disclose their complete TINs (a truncated TIN may be used).
Timing of furnishing statement to individuals. Reporting entities must furnish this statement to the responsible individual on or before January 31 of the year following the calendar year in which minimum essential coverage is provided. If mailed, the statement must be sent to the individual’s last known permanent address or, if no permanent address is known, to the individual’s temporary address.
What penalties may apply under Section 6055?
Penalties will apply to health insurance issuers or to self-insured employers that fail to file the information with the IRS or to provide a copy to individuals (e.g., $100 per return up to $1.5 million per year). Penalties may be reduced or waived if the failure was due to reasonable cause and not to willful neglect.
What is the Section 6055 compliance date?
Technically, the proposed regulation applies to calendar years beginning after December 31, 2014. Consistent with the one-year delay in the employer play-or-pay mandate, however, health insurance issuers and self-insured employers will not be penalized for failure to comply with the Section 6055 reporting requirements for coverage provided in 2014. No penalties will apply if health insurance issuers’ and self-insured employers’ reports begin in 2016 for the 2015 calendar year, including the furnishing of statements to covered individuals in 2016 with respect to 2015. The IRS is encouraging taxpayers, however, to voluntarily comply with Section 6055 information reporting for minimum essential coverage provided in 2014 by applying these regulations once finalized.
BACKGROUND — IRC SECTION 6056
The PPACA also added Section 6056 to the Internal Revenue Code. Under Section 6056 applicable large employers (generally employers with 50 or more full-time-equivalent employees in the prior year determined on a controlled group basis) must report to the IRS information about the health coverage that they offer to their full-time employees and requires them to furnish related statements to employees.
Each applicable large employer member is required to make a return and furnish a related statement to its own full-time employees for the calendar year. An applicable large employer member refers to each separate legal entity within a controlled group (e.g., each separate corporation, subsidiary or partnership within a controlled group). Note that while each applicable large employer member within a controlled group of corporations may have secured its own unique EIN — and usually should do so — that is not always the case due to lax administration of EINs by the IRS and by taxpayers.
An applicable large employer member will satisfy its Section 6056 information-reporting requirement to the IRS by completing and filing IRS Form 1095-C (an employee statement) and a transmittal form using IRS Form 1094-C, or other forms the IRS designates, or a substitute form. Draft copies of these forms will be available at a future date.
Governmental employers are also required to report the Section 6056 information on their full-time employees. Alternatively, a governmental employer may designate another unit, agency or instrumentality of the governmental employer as the reporting entity (e.g., the federal government may designate FEHBP).
What information must be reported under Section 6056?
Every applicable large employer member must file a return with respect to each full-time employee. Each return must show:
- The name, address and EIN of the applicable large employer member
- The name and telephone number of the applicable large employer’s contact person
- The calendar year for which the information is reported
- A certification of whether the applicable large employer member offered to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, by calendar month
- The months during the calendar year for which coverage under the plan was available
- Each full-time employee’s share of the lowest-cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee under an eligible employer-sponsored plan, by calendar month
- The number of full-time employees for each month during the calendar year
- The name, address and TIN of each full-time employee during the calendar year, and the months, if any, during which the employee was covered under the plan
- Such other information as the IRS may require
What information under Section 6056 must be provided to full-time employees?
Any applicable large employer member that files a return under Section 6056 with the IRS also must provide each of its full-time employees who are identified on its return with a written statement showing:
- The name, address and EIN of the applicable large employer member
- The information with respect to that full-time employee that was shown on the employer’s Section 6056 return (see the items listed above)
This required statement provided to each full-time employee may be a copy of IRS Form 1095-C or an IRS-approved substitute statement. A substitute statement must include the information required to be shown on Form 1095-C, but employers may use a truncated TIN as the identifying number for an individual to protect the employee’s personal information. Employers must provide the statement to each full-time employee on or before January 31 of the year following the calendar year to which the information relates. A 30-day extension to furnish this statement to employees will be available for reasonable cause and upon written application for such extension. Likewise, incomplete or erroneous returns must be corrected by the employer with corrections to the IRS and to the full-time employee.
When must the Section 6056 filing be made?
An applicable large employer member must file its information return with the IRS by March 31 of the year following the calendar year to which the information relates if filed electronically (otherwise, before February 28). Electronic returns will be required for large employers that are required to file more than 250 returns, of any type, in a calendar year. Thus, returns covering 2015 generally must be filed by March 31, 2016. This is the case regardless of whether coverage is offered under plans operating on a calendar year or non-calendar-year (fiscal-year) basis.
What penalties may apply under Section 6056?
Penalties will apply to applicable large employer members that fail to file the information with the IRS or to provide a copy to full-time employees (e.g., $100 per return up to $1.5 million per year). Penalties may be reduced or waived if the failure was due to reasonable cause and not to willful neglect.
What is the compliance date for Section 6056?
The regulation under Section 6056 will become effective when the rules are published as a “final” regulation in the Federal Register. This new proposed regulation under Section 6056 proposes that the rules will apply for calendar years beginning after December 31, 2014. Employers will not be subject to penalties with respect to reporting of information covering the 2014 calendar year. This is consistent with the delay of the employer play-or-pay mandate to 2015. In preparation for the application of the employer play-or-pay mandate beginning in 2015, the IRS encourages employers to voluntarily comply for 2014 (that is, for Section 6056 returns and statements filed and furnished in 2015) with the information-reporting provisions (once the information-reporting rules have been issued) and to maintain or expand health coverage in 2014. The IRS asserts that real-world testing of reporting systems and plan designs through voluntary compliance for 2014 will contribute to a smoother transition to full implementation for 2015.
In July 2013, the Obama administration announced a one-year delay in the employer play-or-pay mandate, from 2014 to 2015. The burden of information reporting under Sections 6055 and 6056 were cited by the government as a large part of the rationale for that delay. Now employers and health insurance issuers finally have the proposed regulations on these challenging reporting requirements. It hardly seems to have been worth the wait. Largely parroting the statutory requirements, the proposed rules do almost nothing to reconcile the overlapping requirements of the two code sections, with one set of rules requiring information reporting by any entity that provides minimum essential coverage and the other set of rules requiring information reporting by any large employer offering minimum essential coverage to its full-time employees.
Among the ideas offered for reaction under the proposed regulations:
- The IRS may consider allowing employers to report minimum value coverage on IRS Form W-2, rather than requiring a separate return under Section 6055 and furnishing separate employee statements on such coverage. This might involve using a box on Form W-2 to provide the required monthly employee-only contribution for the lowest-cost minimum value coverage. As proposed, this method could be used only for employees employed for the entire calendar year, provided the required contribution for the lowest-cost self-only coverage remains the same for the entire year.
- The IRS will consider whether this W-2-based method might be extended to scenarios where the required monthly employee contribution is below a specified threshold, such as below 9.5% of the federal poverty level for a single individual, meaning that the individual cannot be eligible for the premium assistance tax credit.
- The IRS will consider whether it might waive the requirement for employers to identify the number of full-time employees, and to skip identifying whether a particular employee offered coverage is full-time, provided the employer certifies that all employees to whom it did not offer coverage during the calendar year were not full time.
It appears that the “heavy lifting” of identifying more creative ways to reduce and minimize these reporting burdens has been left to self-insured employers, health insurance issuers, and their record keepers and vendors. As a consequence, employers have a special interest in using the public comment period (closing November 8, 2013) and the IRS’s public hearings on the proposed regulations (on November 18 and November 19, 2013) to offer approaches to information reporting that might reduce the burden on employers.
IRC Section 6055 proposed regulation
IRC Section 6056 proposed regulation