Deadline Approaching for New ACA Reporting Requirements
There is a new Affordable Care Act (ACA) deadline approaching for employers starting this January 31, 2016. It is important that employers prepare now to ensure that they make the necessary disclosures to both employees and the Internal Revenue Service (IRS). While there have been numerous delays to several key provisions since the ACA was passed in March 2010, the reporting requirements are complex and confusing, leaving employers concerned about penalties for not complying.
The IRS initially had provided employers with Transition Relief by delaying many aspects of the “shared responsibility” requirements of the ACA until 2015. However, most of the relief provisions have expired and now many employers have to comply with the “employer mandate” and reporting provisions of the law. For many employers, their insurance brokers are advising them on compliance with the law and many payroll companies are providing the reporting service. Therefore, the question of whether the ACA applies to them is already clear. This is an overly simplified summary and overview of the law for the purpose of explaining the new reporting requirements.
Brief Summary of the ACA
The ACA requires that most U.S. citizens and residents have health insurance and provide for tax penalties for those without coverage.[i] The Act requires that employers with 50 or more full time equivalent employees (FTE) offer “minimum essential health coverage” that is “affordable” to the employee and their eligible dependents or pay a penalty if that employee obtains coverage through a state based exchange. [ii]
Full Time Equivalent (FTE)
The law provides that a full time employee is one that works 30 or more hours per week. To determine whether an employee is full time under the law, there are two methods an employer can use. First, the employer can identify its full time employees by identifying those employees who work an average of 30 hours per week in a calendar month.[iii] Alternatively, an employer can look back at an employee’s hours over a prior period (referred to as a measurement period) to determine if they qualify for a future period (referred to as a stability period).[iv]
To measure the full time equivalent employees (part time or per diem), an employer can take the total number of hours worked each month by the part time or per diem staff (do not include more than 120 hours per employee per month) and divide that number by 120. [v]
An employer has 10 part time employees each of whom works 60 hours per month. Add the total number of hours (600) worked by all part time and per diem employees and divide that number by (120), the count is (5) full time equivalent employees.
Minimum Essential Health Coverage
To comply with the ACA, the coverage under an employer sponsored plan must provide “minimum essential health coverage.” Essential health benefits must include items and services within at least the following 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.[vi] Generally, most employer sponsored fully insured “off the shelf” health plans provide coverage that meets the definition of “essential coverage” under the ACA.
To be considered “affordable” the employee cost for the self-only coverage cannot exceed 9.5 percent of the employee’s total household income. However, it is very unlikely that any employer will have actual knowledge about an employee’s total household income, so the IRS released three safe harbors that employers can use to determine “affordability.”
- Employee’s required premium co-share for the lowest-cost, self-only coverage that provides minimum value is not greater than 9.5 percent of an employee’s W-2 taxable (Box 1) income.
- Employee’s required premium co-share for the lowest-cost, self-only coverage that provides minimum value is not greater than 9.5 percent of rate of pay as of the first day of the coverage period (generally the first day of the plan year).
- Employee’s required premium co-share for the lowest-cost, self-only coverage that provides minimum value is not greater than 9.5 percent of the federal poverty level (FPL) for a single individual.[vii]
For assistance with determining whether your health plan meets the “affordability” requirements under the ACA, enlist the assistance of your employee benefits broker and/or your accountant.
New Reporting Requirements
The reporting requirements of the ACA are the mechanism for the Federal Government to identify which employers are offering “affordable” and “essential” health coverage to their eligible employees. More importantly, it provides the information to the IRS to determine which employers will need to pay assessment fees for failing to offer that coverage and a qualifying employee obtains coverage from the state based exchange.
The new reporting requirements add to the employer’s responsibility to provide employees with annual notices by January 31. Each year employers are required to provide their employees with a statement of earnings (W2) so that they can file their tax returns. This year, employers will have to provide an ACA form to their employees so that they can file their return for 2015. The reporting requirements for employers differ depending upon the employer size.
- Employers with 50 or fewer FTE who currently have fully funded insurance plans, the new reporting requirements will not impact your organization as your insurer will file Form 1095-B/1094-B with the IRS.
- Small employers who are self-insured, your organization will be required to provide employees with Form 1095-B by January 31, 2016 for their tax filing purposes. The employer will be required to file Form 1095-B/1094-B directly with the IRS by February 28, 2016 or March 31, 2016 if filing electronically.
- Mid-size and large sized employers, the requirements are very similar. The employees must be provided a Form 1095-C by January 31, 2016 so that they can file it with their annual tax return. Additionally, employers will be required to file Form 1095-C and 1094-C to the IRS by February 28, 2016 or March 31, 2016 if filing electronically. These forms must be filed for all full time employees regardless of whether they participate in the employer’s plan, and for each part time employee who is enrolled in the employer’s self-insured plan.
Practical Information for Employers
Nearly all payroll services provide the data collection and reporting services to complete these new reporting requirements. Most charge a relatively modest fee given the amount of information that needs to be compiled to complete the necessary forms. If you have not already arranged for this service through your payroll company, you should do so as soon as possible. For those providers that do not have a payroll service, most benefit brokers also provide the service or can connect you with companies who can complete the reporting service for you.
Communication with Employees
As with any change for employees, communication will be critical. It is important that employers notify all eligible employees that they will receive the Form 1095-C notice by January 31, 2016 to be used when filing their annual tax return. Do not forget to notify all supervisory and management staff as they will likely field the initial questions from field employees. It is better to empower them with the information rather than have them feeling uninformed and left out. Early and frequent communication will prevent a flurry of questions regarding the form when it shows up in their mailbox.
[i] Summary of the Affordable Care Act, The Henry J. Kaiser Family Foundation, April 25, 2013. http://kff.org/health-reform/fact-sheet/summary-of-the-affordable-care-act/.
[ii] Employer Shared Responsibility Provisions, Internal Revenue Service, September 14, 2015. https://www.irs.gov/Affordable-Care-Act/Employers/Employer-Shared-Responsibility-Provisions
[iii] Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, Internal Revenue Service, May 20, 2015. https://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act.
[iv] Section 4980H-Shared Responsibility for Employers Regarding Health Coverage – Approach to Changes in Measurement Periods or Methods Applicable to an Employee, Internal Revenue Service Notice 2014-49
[v] Determining if an Employer is an Applicable Large Employer, Internal Revenue Service, March 12, 2015. https://www.irs.gov/Affordable-Care-Act/Employers/Determining-if-an-Employer-is-an-Applicable-Large-Employer
[vi] Essential Heal Benefits, Healthcare.Gov.,https://www.healthcare.gov/glossary/essential-health-benefits/
[vii] Determining if an Employer is an Applicable Large Employer, Internal Revenue Service, March 12, 2015. https://www.irs.gov/Affordable-Care-Act/Employers/Determining-if-an-Employer-is-an-Applicable-Large-Employer