The Internal Revenue Service (IRS) has proposed new rules for health plan coverage reporting that will be used to enforce elements of health care reform. Under the first rule, insurers, self-insured employers, government-sponsored programs and others that provide minimum essential coverage must report coverage information to the IRS and to covered individuals. Under the second rule, large employers must report the health plan coverage they offer full-time employees to both the IRS and employees.
The first rule pertains to Internal Revenue Code (IRC) section 6055 and relates to the individual mandate under the health care reform law. The second applies to section 6056, which relates to enforcement of the employer mandate. The IRS will also use the reported information to administer premium assistance tax credits. Collecting, compiling and reporting this information will impose new administrative burdens and costs for self-insured employers, insurers and their respective vendors. The new IRS filing requirements also apply to multiemployer plan trustees, governmental employers, and various state and federal agencies.
Electronic filings covering calendar-year 2015 must be submitted by March 31, 2016 (paper filings by February 28 for small employers only). The taxpayer-specific information for calendar-year 2015 must be provided to taxpayers by January 31, 2016. This timing applies to both calendar-year and fiscal-year health plans; thus, employers and insurers with non-calendar-year plans must submit information from portions of two plan years. The IRS is encouraging reporting entities to voluntarily file information for 2014; however, no penalties will apply for any 2014 data.
Beginning in 2014, most U.S. citizens and legal residents must either maintain minimum essential coverage for themselves and their dependents or pay a penalty tax with their income tax returns.
Minimum essential coverage includes the following:
- Health insurance coverage sold in the individual market, such as a qualified health plan offered through a health care exchange (also known as a marketplace)
- Employer-sponsored health plans
- Government-sponsored programs, such as Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) and TRICARE
Also beginning in 2014, federal tax credits (redeemable in an exchange) become available to most taxpayers with household income up to 400% of the federal poverty level who lack access to affordable employer-sponsored minimum essential coverage. To be considered affordable, the employee contribution for the lowest-cost employee-only coverage may not exceed 9.5% of the employee’s household income, and the plan’s actuarial value must be at least 60%.
The employer play-or-pay mandate takes effect in 2015. Under the mandate, applicable large employers (generally those with at least 50 full-time employees) must either offer full-time employees and their children minimum essential coverage that meets both affordability and minimum value requirements, or pay a penalty tax to the IRS.
Individual mandate reporting
The proposed regulation interprets, implements and, in some respects, modifies the statutory requirements of IRC section 6055.
Reporting entities include insurers, self-insured group health plans, government-sponsored programs and other entities that provide minimum essential coverage. While reporting entities may delegate the reporting to third-party administrators and record keepers, they cannot transfer the potential liability for reporting failures.
For self-insured group health plans, the following rules would apply:
- For single-employer self-insured group health plans, employers must report plan information. Where a single employer is part of a controlled group of corporations, each employer is responsible for reporting; however, one member of the group may file returns and furnish statements on behalf of other members.
- For multiemployer health plans, the joint board of trustees, association, committee or other similar group is responsible for reporting.
- Government employers that provide self-insured coverage for employees must report the information or designate another unit or agency to do so.
The executive department or agency of a governmental unit that provides coverage is responsible for reporting (e.g., the Department of Defense is responsible for reporting coverage under the TRICARE program). Similarly, the relevant state agency that administers Medicaid or CHIP at the state level is the responsible reporting entity, rather than the Department of Health and Human Services.
Insurers need not report on individual plans sold in an exchange, except for small group market qualified health plans sold under the Small Business Health Options Program (SHOP).
Information to report to the IRS
In general, all filing entities must report the following information for the calendar year of coverage:
- The filer’s name, address and employer identification number (EIN)
- Name, address and taxpayer identification number (TIN) of the responsible individual, such as the primary insured, employee or former employee (the TIN is generally the Social Security number)
- Name and TIN of each covered individual
- For each covered individual, the months for which the individual was covered and entitled to receive benefits for at least one day (under the individual mandate, someone has minimum essential coverage for the entire month if he or she has coverage for at least one day)
- Any other information specified in forms, instructions or published guidance
Although the proposed regulation makes TIN reporting mandatory, reporting entities will not be penalized for not reporting TINs if they have made a reasonable effort to collect them. A reasonable effort means having made at least three attempts to obtain a TIN after the first attempt (e.g., at enrollment). After that, reporting entities may report the date of birth instead.
Health plan insurers must also report the following information:
- The sponsoring employer’s name, address and EIN
- Whether the coverage is a qualified health plan enrolled in through SHOP and, if so, the SHOP unique identifier
- Other information specified in forms, instructions or published guidance
Health insurers and self-insured employers may also have difficulty obtaining overseas addresses for individuals living abroad, and the proposed regulation requires only that they report the last known address.
Returns should be filed using IRS Form 1095-B, along with a transmittal form, Form 1094-B. Draft versions of these forms will be available at a later date. Filers might be able to use IRS-approved substitute forms.
Statements for individuals
All reporting entities must furnish a statement to the responsible individual — the primary insured, employee or former employee — with the following information:
- Policy number (if applicable)
- Name, address and contact number for the reporting entity
- Coverage information reported to the IRS
The proposed regulation allows reporting entities to deliver statements electronically if the recipient consents, and requires them to furnish one statement per address. To protect the privacy of covered individuals, statements may use a truncated TIN.
Reporting entities must furnish these statements by January 31 of the year following the coverage year. Mailed statements must be sent to the individual’s last known permanent address or, if no permanent address is known, to the individual’s temporary address.
Employer mandate reporting
Under section 6056, applicable large employers must report to the IRS information about health insurance provided to full-time employees, whether the coverage is insured or self-insured. They must also report the information to their employees.
Information to report to the IRS
In general, filing entities must file yet-to-be-designed Form 1095-C, which must include the following information for the calendar year of coverage:
- Name, address and EIN
- Name and telephone number of a contact person
- Calendar year for which the information is reported
- Certification of whether the employer offered an eligible health plan providing minimum essential coverage to full-time employees (and dependents), by month
- Months the coverage was available
- The employee’s share of the lowest-cost monthly premium for self-only coverage
- Number of full-time employees for each month
- Name, address and TIN of each full-time employee during the year and the months the employee was covered under the employer plan
- Any other information the IRS may require
Statements for full-time employees
Employers that file Form 1095-C also must provide all full-time employees identified on the return with a written statement showing the following information:
- Employer’s name, address and EIN
- Information about the employee shown on Form 1095-C
This required statement may be a copy of IRS Form 1095-C or an IRS-approved substitute statement, which must include all required information shown on Form 1095-C. Employers may use truncated TINs to protect employees’ personal information. Employers must provide the statement by January 31 of the year following the calendar year of coverage, although a 30-day extension will be available upon written application for reasonable cause.
Employers must correct any incomplete or erroneous returns and file corrections with the IRS and the affected full-time employee.
Filing entities that fail to file required information with the IRS or provide a copy to full-time employees or individuals may be subject to penalties, although the IRS may reduce or waive them if the failure was due to reasonable cause and not to willful neglect.
Under the proposed rules, large self-insured employers must separately report under the requirements of sections 6055 and 6056. The IRS has asked for comments on ways to minimize duplications. According to the IRS, future guidance may allow these entities to file a single statement for both sections 6055 and 6056.
The IRS and Treasury Department are also considering allowing large employers with self-insured plans that offer minimum essential coverage with no required employee contribution to skip the section 6056 statements to covered employees. As most large employer plans are contributory, this exception would not apply to most employers.
The proposed regulations allow filers to use substitute forms and statements for individuals, which may permit self-insured health plans to furnish a single substitute statement to covered individuals for both sections 6055 and 6056.
The government cited the burden of information reporting as a rationale for delaying the employer mandate. The proposed rules, however, do little to synthesize the overlapping health plan coverage reporting requirements of the two code sections. One set of rules requires information reporting by any entity that provides minimum essential coverage, while the other requires reporting by any large employer offering minimum essential coverage to full-time employees.
The proposed regulations offer various ideas for reaction:
- One proposal would allow employers to report minimum value coverage in a box on Form W-2, rather than requiring them to file Form 1095-B and furnish separate employee statements. As proposed, however, W-2 reporting would be available only for those employed for the entire year where the required contribution for the lowest-cost self-only coverage remained the same for the entire year.
- Another idea is extending the above W-2 method to scenarios where the required monthly employee contribution must exceed a threshold for the worker to qualify for premium assistance, such as above 9.5% of the federal poverty level.
- A third idea would waive the requirement for employers to identify the number of full-time employees and identify whether an employee offered coverage is full time, provided the employer certifies that all employees to whom it did not offer coverage during the year were not full time.
Self-insured employers and others responsible for filing under the proposed regulation will need to estimate the operational impact and IT resources required to meet the requirements, either directly or from record keepers and other vendors. They must work with their IT and payroll departments and with third-party administrators and record keepers to ensure they will be ready to report for 2015.
It appears that the “heavy lifting” of identifying creative ways to reduce and minimize these reporting burdens has been left to self-insured employers and health insurance issuers, along with their record keepers and vendors. Thus, employers have an incentive to offer reporting approaches that would reduce their burden.
Comments are due by November 8, 2013, and public hearings on the proposed regulations are scheduled for November 18 and 19.