Health Reform Update: Reporting Provisions

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1 April 24, 2014 Action Required Prior to 2015 Health Reform Update: Reporting Provisions In March, the Internal Revenue Service (IRS) issued final rules on the informational reporting requirements for health plans, issuers and employers as directed by the Affordable Care Act. Voluntary compliance is requested for calendar year The reporting is mandatory as of calendar year 2015, although the statements and returns will not be transmitted until the first quarter of This update focuses solely on the informational reporting requirements for employers. The IRS expects to issue the Forms for the statements and returns later this year. Section 6055 reporting is for any entity that provides minimum essential coverage, including employers of any size. Section 6056 reporting is only for applicable large employers (ALEs), employers who are subject to the Employer Shared Responsibility provision, also known as Play or Pay. See the client update Employer Mandate Penalty Delay for Certain Employers to determine status as an ALE. ALEs afforded enforcement delays or transitional relief in 2015 remain subject to the 6055 and 6056 reporting requirements beginning January See the client update Employer Mandate Penalty Delay for Certain Employers for qualifying criteria. The final rules generally streamline and simplify the reporting requirements. Plans that are partially self-insured or fully self-insured are generally subject to both reporting requirements and may use a single form for both reporting requirements. Fully insured plans that are subject to both reporting requirements may have the ALE complete the top half of the form to satisfy the 6056 requirements and the entity that provides minimum essential coverage (MEC) complete the bottom half of the form to satisfy the 6055 requirements. Alternatively, two separate forms may be used provided each entity fully completes its own section and satisfies the reporting requirements. The general method for reporting is outlined below but the final regulations allow three alternate methods of 6056 reporting for employers who meet specific qualifications. Dallas Fort Worth Austin Lubbock Midland 1

2 Who is required to report? Why is reporting required? Who receives the reporting? What is required to be reported on the return to the IRS? Section 6055 Section 6056 Any entity that provides minimum essential coverage (MEC) including: Health Insurance Issuers / Carriers for all size employers, Self-insured plan sponsors, Government-sponsored programs, Grandfathered plans Reporting determines whether an individual had MEC; if not, the individual must pay a penalty A statement is sent to the responsible individual which is generally the employee but also includes COBRA beneficiaries and retirees, if they are covered The return is sent to the IRS Reporting entity name, address, Employer Identification Number (EIN) Employer name, address and EIN For small employers, whether the coverage was obtained through the SHOP (small employer Marketplace) Name and last known address of the responsible individual (generally, the employee) The name & Taxpayer Identification Number (TIN) 1 (generally, social security number) of each individual (including dependents) enrolled in MEC The months of coverage for each covered individual Any additional information specified by the IRS Some information may be via an indicator code ALEs who are fully insured, partially self-insured, fully selfinsured or do not offer coverage, including grandfathered plans Reporting to the IRS helps determine compliance with the employer shared responsibility provision (also known as Play or Pay) Employee statements help determine whether employees can claim a premium tax credit for coverage purchased through the Exchange Marketplace A statement is sent to each employee who averages at least 30 hours per week (fulltime employees) The return is sent to the IRS ALE name, address, Employer Identification Number (EIN) Contact name & phone number at the ALE Whether the ALE offered coverage, by month The number of full-time employees, by month For each full-time employee, the months coverage was available the cost for self-only coverage of the lowest cost minimum value plan offered, by month name, address and TIN the months of coverage Any additional information requested by the IRS (see below) Some information may be via an indicator code Dallas Fort Worth Austin Lubbock Midland 2

3 What is not required to be reported on the return to the IRS? What is required to be reported on the statement sent to the individual or employee? What is the reporting timeframe? When is reporting required? How will reporting be submitted to the IRS? Section 6055 Section 6056 Employer contribution to the monthly premium Any coverage not designated as MEC see MEC paragraph below the chart Any information for individuals who are not covered by MEC Name, address and phone number of the reporting entity The required information (noted above) to the IRS with respect to the individual A truncated TIN may be used on the individual statement Calendar year, regardless of the plan year Reporting begins for the 2015 calendar year The statement is due to the individual by January 31 2 of the following calendar year The return is due to the IRS by the end of February 2 (March 2 if filing electronically) of the following year The length of the waiting period before coverage begins (although this information may be requested using an indicator code) The ALE s share of the total allowed cost of benefits The monthly premium for the lowest cost option by enrollment tier The months of dependent coverage Whether the ALE expects to be an ALE the following year The cost of coverage for spouses and dependents The look back measurement period Dependent TINs ALE name, address, EIN The required information (noted above) to the IRS with respect to that full-time employee Calendar year, regardless of the plan year Reporting begins for the 2015 calendar year The statement is due to the employee by January 31 2 of the following calendar year The return is due to the IRS by the end of February 2 (March 2 if filing electronically) of the following year ALEs submit a transmittal report (Form 1094-C) Entities that are not ALEs submit a transmittal report (Form B) The IRS forms will be available in the near future Reporting will be submitted electronically; exceptions apply to entities who file fewer than 250 returns (counted separately by type of return: 1095-B and 1095-C) Dallas Fort Worth Austin Lubbock Midland 3

4 How will the statements be distributed to individuals / employee? What are the penalties for non-compliance? How may an entity transfer responsibility for the reporting? Section 6055 Section 6056 Partially self-insured and fully self-insured ALEs send one statement (Form 1095-C) for both the 6055 and 6056 reporting Fully insured ALEs send statements (Form 1095-C) but only complete the 6056 reporting section Section 6055 non-employer reporting entities (i.e., insurance carriers) send statements (Form 1095-B) with the 6055 reporting section completed Substitute statements are permissible if they include all the required information Statements may be sent electronically if strict standards are met 3 If mailed, the statement must be sent first class mail to the last known permanent address of the responsible individual Only one statement per address is required, if mailed The statement(s) may be mailed with a Form W-2 The IRS forms will be available in the near future Generally, the penalty is $100 Generally, the penalty is $100 per violation with a maximum per violation with a maximum penalty of $1,500,000 per year penalty of $1,500,000 per for failure to file a correct year for failure to file a correct return (in accordance with IRS return (in accordance with 6721) and an additional IRS 6721) and an additional $1,500,000 per year for failure $1,500,000 per year for failure to furnish a correct statement to furnish a correct payee / to individuals (in accordance employee statement (in with IRS 6722) accordance with IRS 6722) Penalties will not be imposed Penalties will not be imposed for the 2015 reporting year on for the 2015 reporting year on entities that make a good faith entities that make a good faith effort to comply (reporting and effort to comply (reporting and transmittal must be done timely transmittal must be done but might have incorrect or timely but might have incomplete information) incorrect or incomplete Penalties may be waived (in information) accordance with IRS 6724) Penalties may be waived (in accordance with IRS 6724) Third parties may furnish the return to the IRS and statement to individuals The entity retains responsibility for providing the information Third parties may furnish the return to the IRS and employee statement The employer retains responsibility for providing the information Governmental units may designate another person to report; the designee takes on the liability for the reporting and is responsible for the penalties for non-compliance with the final rules for informational reporting Governmental units may not transfer liability and penalty payment for the play or pay employer mandate Dallas Fort Worth Austin Lubbock Midland 4

5 Minimum Essential Coverage (MEC) For purposes of the 6055 reporting for employers, MEC is an eligible employer-sponsored group health plan. It is not a stand-alone dental or vision plan, long term care, certain supplemental coverage, an excepted health flexible spending account, a Health Savings Account bank account, a Health Reimbursement Arrangement that supplements another MEC plan, coverage for an onsite medical clinic, a wellness program that reduces premium or cost-sharing under a group health plan, or Employee Assistance Programs that do not provide significant benefits in the nature of medical care and are not coordinated with another group health plan s benefits. Additional ALE Requirements ALEs will also be required to report additional data for 6056 via an indicator code: Why coverage was not offered in a month Whether the minimum value coverage was offered to an employee, spouse and dependents Whether the employee is a full-time or not a full-time employee in a month Whether the ALE offered affordable coverage The total number of employees by month Whether the ALE is a member of an aggregated group Section 6056 Optional Alternate Method Qualifying Offer A qualifying offer is an offer of minimum value coverage that does not cost more than 9.5% of the 48 contiguous states Federal Poverty Level 4 in 2015 for single coverage and also offers minimum essential coverage to the full-time employee s spouse and children. ALEs who certify (on the Form 1094-C) that a qualifying offer was made to one or more of its fulltime employees may provide simplified employee statements in lieu of the Form 1095-C to each full-time employee who received the qualifying offer for all 12 calendar months of the year. The simplified statement will be in a format prescribed by the IRS. The statement will notify the employee that a qualifying offer was made for all 12 calendar months of the year and thereby renders the employee and family generally ineligible for a premium tax credit. Spouse coverage is not required to be offered under the play or pay mandate but if it is offered and the employer meets the above criteria, the 6056 reporting will be simplified. Using this alternative method does not require an employer to solely use the federal poverty level safe harbor when determining affordability; however, the federal poverty level affordability threshold must be met to use this alternate reporting method. ALEs that do not make a qualifying offer of coverage to a full-time employee for all 12 calendar months are not permitted to use this alternate method of reporting with respect to that employee. Section 6056 Optional Alternate Method For 2015 Only ALEs who certify (on the Form 1094-C) they have made a qualifying offer (as defined above) to at least 95% of their full-time employees, their spouses and their dependents may use an alternate simplified reporting method by providing a simplified statement in lieu of the Form 1095-C to each full-time employee by January 31, The simplified statement will be a format prescribed by the IRS and will be available for use with all employees, including employees who are not offered coverage. The statement may vary based on whether the employee was offered coverage for the entire calendar year, part of the year or if coverage was not offered. If coverage was offered for the entire calendar year, the statement will notify the employee that a qualifying offer was made for all 12 calendar months of the year and thereby renders the employee and family generally ineligible for a premium tax credit. Dallas Fort Worth Austin Lubbock Midland 5

6 ALEs are only required to offer coverage to at least 70% of all full-time employees in 2015 to satisfy the play or pay mandate. ALEs that offer coverage to between 70 94% of all full-time employees are not permitted to use this alternate method of reporting. ALEs that do not offer dependent coverage in 2015 are not permitted to use this alternate method of reporting. Section 6056 Optional Alternate Method 98% Offer ALEs that certify (on the Form 1094-C) they offered affordable, minimum value coverage to at least 98% of their employees and their dependents (not including spouses) on the 6056 report (listed by employee name) are not required to identify on the report the full-time status of employees by month nor report the total number of full-time employees for the year. Full-time employees who are not offered coverage must also be listed on the report. Solely for the 98% offer alternate method, affordability is deemed to be any of the 3 employer affordability safe harbors under the employer shared responsibility requirement. ALEs must continue to send a statement to each full-time employee. ALEs are only required to offer coverage to at least 95% of full-time employees and their dependents as of 2016 to satisfy the play or pay mandate. ALEs who offer coverage to less than 98% of all employees listed on the report are not permitted to use this alternate method of reporting. The IRS anticipates ALEs who use this alternate method may have to prove the full-time status of one of its employees, if that employee claims the premium tax credit on his or her Form ALEs must maintain accurate records in case the IRS requests such documentation at a later date. Combining Alternate Methods ALEs are permitted to use different alternate methods for different employees. ALEs are permitted to use a combination of an alternate and general method for different employees. Reporting for ALEs with Full-Time Equivalent Employees All ALEs are subject to the information reporting requirements, even if the ALE is not required to offer coverage in 2015 as a result of transitional relief. See the client update Employer Mandate Penalty Delay for Certain Employers. These ALEs must certify on the form 6056 they meet the qualifications to delay the penalty. Additional details should be released later this year. Employer Aggregation Rules The Section 414 employer aggregation rules do not apply to the informational reporting requirements. Each employer is responsible for providing reporting for its employees. Employers may transfer the reporting requirements to a third party but the employer maintains the liability for the reporting. Multiemployer Plans The 6055 reporting is furnished by the plan sponsor. The plan sponsor for a multiemployer plan is the association, committee, joint board of trustees or other group of representatives who establish or maintain the plan. The 6056 reporting may be furnished by the plan administrator for employees who participate in the multiemployer plan, while the ALE will furnish the reporting for employees who do not participate in the multiemployer plan. The multiemployer plan may assist the employer with the return to the IRS and the statement to employees. The ALE retains liability for providing the information. Dallas Fort Worth Austin Lubbock Midland 6

7 Non Permissible Reporting Methods The final rules do not allow the 6055 or 6056 reporting on an employee s Form W-2. Voluntary reporting at other times of the year is not allowed. Next Steps Voluntary compliance is requested but not required for calendar year The Forms are expected to be released by this summer. Fully insured plans will rely on their insurance carriers for the 6055 MEC reporting. The 6056 ALE reporting will be facilitated by the ALE. Two separate forms will be sent to the employees and two separate transmittals will be sent to the IRS. Partially self-insured and fully self-insured plans will facilitate both the 6055 MEC and the 6056 ALE reporting, generally on the same combined form to each employee and on the same transmittal to the IRS. Employers and insurance carriers should familiarize themselves with these reporting requirements. Prior to January 2015, ALEs should develop a plan to collect the necessary data or to centralize any existing data that will be required for the reporting. Additional guidance may accompany the forms when they are released A reporting entity may report a date of birth in lieu of a TIN if the TIN is not available after making reasonable efforts to collect it. The final regulations indicate reasonable efforts include making 2 consecutive annual requests for the TIN after the initial request. The TIN may be truncated on the statement to individuals. 2 If the deadline falls on a Sunday, the deadline is automatically moved to the next calendar day. 3 Individuals and employees must affirmatively consent to receiving a statement electronically. Each form must be specifically referenced in the request. These electronic filing rules are not the same as and are more restrictive than the Department of Labor electronic safe harbor guidelines. 4 In 2014, 9.5% of the 48 contiguous states federal poverty level is $92.39 / month for single coverage. The federal poverty level will be indexed for This update is based on the known provisions of the Affordable Care Act. Any inclusion of incorrect data or omission of data is unintentional. This is not to be construed as legal or tax advice. Dallas Fort Worth Austin Lubbock Midland 7