The Internal Revenue Service (IRS) has issued final regulations for providers of minimum essential health coverage that are subject to reporting requirements under the Patient Protection and Affordable Care Act (PPACA). The IRS also issued a separate set of final regulations with guidance for applicable large employers that must submit reports for purposes of the individual and employer mandates. The major news is that the guidance gives both providers and employers some simpler reporting methods.
These final regulations take effect January 1, 2015, and reporting entities will not be subject to compliance penalties for 2014. Reports (including employee statements) must be made in 2016 for calendar-year 2015. The government continues to encourage reporting entities to voluntarily comply for 2014.
The government will use reports from providers of minimum essential coverage and applicable large employers to enforce the individual and employer mandates, and to administer premium tax credits. When health insurers and plan sponsors file taxpayer information with the IRS, they must also provide a copy to the taxpayer, along with their own contact information (name, address and phone number). The information from health insurers will enable taxpayers to establish — and the IRS to verify — whether taxpayers were covered by minimum essential coverage and their months of enrollment during a year.
The reports from providers of minimum essential coverage are required under Internal Revenue Code Section 6055, and the coverage reports from applicable large employers (generally employers with 50 or more full-time or full-time equivalent employees in the prior year determined on a controlled group basis) are required under IRC Section 6056.
The IRS proposed regulations on the PPACA reporting requirements in September 2013 (see Towers Watson Insider, October 2013).
Streamlined reporting provisions
In addition to providing a general method for reporting, the regulations also provide several ways to streamline reporting.
Single, combined reporting form: Under the final regulations, applicable large employers with self-insured group health plans may report required information under both Sections 6055 and 6056 on a single, combined form (not yet released). The combined form (Form 1094-C for transmittal and Form 1095-C for the employee statement) will have two sections: the top half will cover Section 6056 reporting and the bottom half Section 6055. So, applicable large employers with self-insured group health plans will need to complete both parts of the form, while applicable large employers with insured group health plans will need to complete only the top section. Insurers and other providers, such as self-insured multiemployer plans and providers of government-sponsored coverage, will report only under Section 6055 using a separate form.
Simplified option for employer reporting: The final regulations offer a simplified alternative to monthly reporting for employers that provide a “qualifying offer” to full-time employees. Instead of providing employee-specific information, the employer would report employees’ names, addresses and taxpayer identification numbers (TINs), as well as a code indicating a qualifying offer was made.
- A qualifying offer is an offer of minimum value employee-only coverage that costs the employee up to 9.5% of the federal poverty level (FPL) (about $1,100 in 2014) plus an offer of coverage for the employee’s family.
- For employees receiving qualifying offers for all 12 months of the year, employers must report the full-year qualifying offer to the IRS and give employees a copy of the simplified report or a standard statement showing that they received the offer.
- For employees receiving a qualifying offer for part of the year, employers can simplify reporting by entering a code for the months in which the qualifying offer was made.
The final regulations phase in the simplified reporting option by allowing an even simpler alternative for 2015. In 2015 only, an employer may optionally certify having made a qualifying offer to at least 95% of its full-time employees (plus an offer of minimum essential coverage to their spouses and dependents). Note that an employer using the transition relief in the final play-or-pay regulations pertaining to the offer of coverage to dependents in 2015 will not be treated as having offered coverage to an employee’s dependents for purposes of this simplified reporting option.
Employers that provide this 95% certification can use the simplified, streamlined reporting method for their entire workforce. Instead of providing Form 1095-C, the employer would furnish a standard statement to all full-time employees for the year by the following January 31. The statement must be in an IRS-prescribed format and may vary depending on whether the qualifying offer was for all, some or none of the months of the preceding calendar year. The statement also should address employees’ possible eligibility for premium tax credits (presumably the IRS will issue model language).
Finally, employers may optionally avoid identifying which employees are full time. To use this simplified method, an employer must certify having offered minimum essential coverage that is affordable and provides minimum value to at least 98% of the employees on whom it is reporting.
Rules applicable to both Sections 6055 and 6056
Taxpayer identification number/date of birth: Under the final regulations, reporting entities may report dates of birth (DOBs) instead of taxpayer identification numbers (TINs) only after either being informed the individual has no TIN or making reasonable but unsuccessful efforts to obtain it. Reporting entities may not terminate coverage because a TIN is not provided. After reporting a DOB in one year, the reporting entity must make reasonable efforts to obtain the TIN for the next year. In addition, reporting TINs for responsible individuals not enrolled in the coverage is optional. Using truncated TINs for security purposes will likely be allowed.
Electronic filing: In a departure from the proposed rules, the final regulations require Forms 1094-C and 1095-C to be filed electronically only if the reporting entity is required to file at least 250 of the specific form (instead of 250 returns of any type).
Substitute statements: The final regulations allow the use of substitute statements that conform to IRS requirements (such guidance has not yet been issued). Employers using combined reporting on Form 1095-C must also provide a single statement to individuals.
Penalties and corrected returns: The IRS will not impose penalties for failure to file or incorrect filing as long the reporting entity made a good-faith effort to comply. Thus, there will be no penalties for returns and statements filed and furnished in 2016 on coverage in 2015 with incorrect or incomplete information, including Social Security numbers, TINs or DOBs. There is no relief for reporting entities that did not make a good-faith effort to comply or filed late.
The final regulations clarify that reporting entities that do not timely file corrected returns and corrected statements when a participant’s circumstances change may be subject to penalties.
Employee statements January 31 deadline: Generally, employee statements must be provided before January 31 of the year following the calendar year of coverage, but the final regulations allow reporting entities with good cause to apply for an extension of up to 30 days. Reporting entities may furnish the statement in the same mailing with Form W-2.
Provider reporting (Section 6055)
In addition to providing the above simplified reporting alternatives, the final regulations clarify numerous other issues, including:
Minimum essential coverage: The final regulations confirm that all providers of minimum essential coverage, including employers with self-insured group health plans, must file an information return and a transmittal on IRS-prescribed forms, even for those who may be exempt from the individual mandate and retirees covered under an employer’s self-insured group health plan.
Supplemental coverage: Section 6055 reporting is not required on arrangements that provide benefits in addition to or as a supplement to a health plan or another arrangement that constitutes minimum essential coverage, including health reimbursement arrangements and health savings accounts. The final regulations clarify that the following are not considered minimum essential coverage and thus are not subject to Section 6055 reporting:
- Onsite medical clinics
- Medicare Part B
- Wellness programs that are an element of other minimum essential coverage, such as wellness programs offering reduced premiums or cost-sharing under a group health plan
- Minimum essential coverage that supplements a primary plan of the same plan sponsor or that supplements government-sponsored coverage (such as Medicare)
Mailing address: Generally, statements must be sent to the individual’s last known address. The final regulations add that a first-class mailing to the last known address or, if no permanent address is known, a temporary address, satisfies the requirement, even if the statement is returned.
Employer reporting (Section 6056)
For full-time employees for each calendar month, reporting entities are expected to submit the following information to the IRS and to the full-time employee using indicator codes rather than specific information:
- Minimum essential coverage meeting minimum value was offered to: employee only; employee and dependents only; employee and spouse only; or employee, spouse and dependents.
- Coverage was not offered to the employee and (1) any failure to offer coverage will not result in a penalty, (2) the employee was not full time, (3) the employee was not employed for the month, or (4) no other code or exception applies.
- Coverage was offered to the employee for the month even though he or she was not full time.
- The employee was covered under the plan.
- The applicable large group member met one of the affordability safe harbors under the final play-or-pay regulations with respect to the employee.
Applicable large employers with fewer than 100 full-time employees: Under the final regulations, employers with 50 to 100 full-time employees are exempt from penalties for 2015. However, these employers must still report under Section 6056 for 2015, certifying eligibility for the transition relief.
Combinations of alternative reporting methods: Employers may use different reporting alternatives for different employees.
Governmental employers: An applicable large-employer governmental unit may report for itself or may designate another agency to report on its behalf (which then becomes responsible for the reporting and any associated penalties for noncompliance). For example, a state may report for a political subdivision of the state. Such a designation must (1) be in writing, (2) contain specific language, (3) be signed by both the applicable large employer and the designated person, (4) be effective under all applicable laws, and (5) acknowledge that the designated person is both appropriate and responsible for the reporting. The designation must also identify the category of full-time employees whose coverage will be reported. If the designated person is responsible for reporting for all full-time employees, the document should state that.
Multiemployer plan members: In a multiemployer plan scenario, the multiemployer plan provides the health coverage and participating employers contribute. Section 6056 applies only to the employer providing coverage to an employee, not to the multiemployer plan itself. However, the regulations allow the multiemployer plan administrator to prepare returns pertaining to full-time employees covered by the collective bargaining agreement and eligible to participate in the multiemployer plan for each contributing employer.
The employer must submit returns for the remaining full-time employees (i.e., those not eligible for the multiemployer plan). The multiemployer plan administrator must file a separate 6056 return for each contributing employer, providing the name, address and identification number for both the plan and the contributing employer. The multiemployer plan may help the employer furnish statements to the employees as well. However, there must be one Section 6056 transmittal form (Form 1094-C) reporting aggregate employer-level data for all full-time employees and one employee statement for each full-time employee. The forms and instructions will provide further detail on these requirements. Note that the employer remains responsible for Section 6056 reporting and any penalties.
Third-party reporting: Applicable large employers may contract with third parties to assist in filing Section 6056 returns and furnishing employee statements, but the employers remain responsible for any penalties for failure to comply.
Employers will want to figure out whether they can use one of the simplified reporting methods rather than the general method of reporting. They might also want to assess whether to contract with a third party to file the appropriate reports and/or furnish employee statements. As soon as the IRS issues draft Form 1095-C, employers will want to design administrative processes to support the reporting function.