IRS holds hearings on employer reporting requirements under health care reform

IRS holds hearings on employer reporting requirements under health care reform Volume 36 Issue 99 December 17, 2013 Last September, the IRS published proposed rules describing how plan sponsors will report the information the agency needs to enforce both the individual and the employer shared responsibility requirements. On November 18 and 19, the IRS held hearings on these proposed regulations. Buck Consultants testified at those hearings on behalf of the ERISA Industry Committee and its members. Compliance with these requirements will require a significant effort, and employers should determine what required data items need to be collected for reporting. This FYI includes a table that summarizes key reporting requirements for sponsors of group health plans. In this article: Background IRS hearings Code section 6055 reporting of minimum essential coverage Code section 6056 reporting by applicable large employers In closing Summary of plan sponsor section 6055 and 6056 reporting Background ACA added two significant reporting requirements to the Internal Revenue Code (Code) to help the IRS enforce the individual and employer shared responsibility requirements and to administer the premium assistance tax credit. Both reporting requirements were to have been effective for coverage provided on or after January 1, 2014, with the first information returns to be filed with the IRS in early 2015: Code section 6055 reporting Insurers, sponsors of self-insured plans, governmental entities, and other parties must report information to the IRS for each individual to whom they provided minimum essential coverage (MEC). They must also provide a statement to the individual. This reporting is intended primarily to support the IRS enforcement of the individual mandate. Code section 6056 reporting Large employers subject to the shared responsibility provisions of the ACA must report information to the IRS about the health care coverage provided to full-time employees. As with the Code section 6055 reporting, a statement is also provided to the individual. This reporting will support the IRS enforcement of the employer shared responsibility provisions. The individual statement will be used by employees to determine eligibility for the individual premium tax credit. 1

On July 2, the Department of Treasury (Treasury) announced a one-year delay for these two reporting requirements, with the first information returns to be filed in 2016 for the 2015 calendar year. (See our July 2, 2013 For Your Information.) Because the delay in the Code section 6056 reporting requirement meant that the IRS would not have the information needed to enforce the employer shared responsibility penalties, the government also delayed imposition of those penalties by one year, until 2015. On July 9, the IRS published guidance on the transition relief for the one-year delay of the reporting and employer shared responsibility requirements. (See our July 22, 2013 For Your Information.) On September 9, the IRS published proposed regulations on the Code section 6055 and Code section 6056 reporting requirements. The IRS held public hearings on the regulations on November 18 and 19. This reporting will be a significant new requirement for plan sponsors. While the proposed regulations also address the reporting requirements for insurers that offer qualified health plans in the marketplaces and reporting requirements for various government health programs, this FYI primarily focuses on the obligations of sponsors of group health plans, and includes a table that summarizes key reporting requirements for those sponsors. IRS hearings At the IRS hearings on November 18 and 19, Buck Consultants testified on behalf of the ERISA Industry Committee (ERIC). ERIC s primary recommendations included: Employers that provide minimum essential coverage to 95% or more of their full-time employees and dependents should be able to satisfy the reporting and disclosure requirements using a check-the-box method Employers should only be required to provide information to individuals upon request, rather than having to provide annual statements to all employees Employers should not be required to obtain employee consent for using electronic delivery of individual statements Employers should not be required to report dependent social security numbers Members of a controlled group should have the option to file one report for the entire controlled group Buck comment. The IRS officials did not appear open to these or other simplification suggestions made by the speakers at the hearing, citing the need to have the detailed reporting for enforcement of the individual and employer shared responsibility requirements commonly called the individual and employer mandates. Officials were also concerned that many employees still do not have adequate access to electronic forms of distribution of the required information. In the preamble to the proposed regulations, the IRS discussed possible simplification approaches that would combine the Code sections 6055 and 6656 reporting, or would combine the Code section 6056 reporting with an expanded W-2. However, IRS officials expressed concerns with both of those approaches at the hearing. 2

Code section 6055 reporting of minimum essential coverage What entities are subject to the reporting requirement? All entities that provide minimum essential coverage (MEC) to an individual during a calendar year are subject to the Code section 6055 reporting requirement. This includes insurers (for coverage not offered through an exchange) and sponsors of selfinsured plans, including self-insured governmental and church plans. The proposed regulations state that for purposes of reporting, the plan sponsor of a selfinsured plan generally will be (1) the employer in the case of a single employer plan, (2) the association, committee, or board of a multiemployer plan, (3) the employee organization of a plan maintained by that organization, and (4) each participating employer in a MEWA. What information is included in section 6055 reporting? Employer name, address, and employer identification number (EIN) Name, address, and tax identification number (TIN) of responsible individual/primary insured, typically employee or retiree Name, address, and TIN of each covered dependent (Individual s birth date may be used if reasonable effort fails to obtain TIN) Months of coverage for each individual Additional information required under future guidance and instructions Members of controlled groups. Each member of the controlled group is required to report separately for its own employees, and other individuals, who are provided MEC under the plan. While the reporting can be coordinated by one party, each member of the controlled group has the reporting obligation. Until further guidance is issued, governmental entities and churches may apply a reasonable, good faith interpretation of the controlled group. Governmental employers. The proposed regulations permit a governmental employer maintaining a self-insured group health plan to enter into an agreement designating another related governmental unit (e.g., a political subdivision of a state), to act on its behalf in satisfying its reporting and disclosure obligations. If the procedural requirements are met, the designated entity will be treated as the plan sponsor. What is minimum essential coverage? Code section 6055 requires entities to report for each individual who had MEC during the prior calendar year. MEC includes: Employer-sponsored health plans, whether insured or self-insured. It also includes standalone retiree health reimbursement arrangements. See discussion below Individual health coverage in the individual market Government-sponsored health programs, such as Medicare, Medicaid, CHIP, and TRICARE Buck comment. For plan years beginning on or before December 31, 2014, self-funded student health coverage is also considered MEC and will need to be reported under section 6055 starting in 2015. This treatment as MEC may be extended into future years. The guidance requests comments on the appropriate reporting entity for this coverage. 3

Health coverage that is not MEC Certain types of health benefits are not considered MEC and thus are not subject to the section 6055 reporting requirement. These include: Excepted benefits. Excepted benefits, such as standalone dental and vision plans, most health FSAs, and critical illness and fixed indemnity plans. Employee assistance programs (EAPs) that don t provide significant medical benefits. Many EAPs provide coverage of a limited number of counseling sessions with a health care provider, typically for behavioral health and substance use disorder. This coverage could make the EAP a health plan and subject to ACA requirements, including the section 6055 reporting. The Treasury released Notice 2013-54 that states an EAP that does not provide significant benefits in the nature of medical care or treatment will be treated as an excepted benefit and not subject to the section 6055 reporting, or other health reform requirements. Plan sponsors may use a reasonable, good faith interpretation of whether an EAP provides significant medical benefits at least through 2014. Retiree-only HRAs and impact on marketplace subsidy eligibility Because it is MEC, a retiree covered by a retiree-only HRA is ineligible for marketplace premium and costsharing subsidies, even if the retiree does not use the HRA funds to purchase coverage in the marketplace. This is an important issue for any employer offering retiree-only HRAs to pre-medicare retirees, who, if covered by an HRA and receiving marketplace subsidies, may have to pay back those subsidies. Treasury has indicated informally that if the retiree is given the option to decline HRA coverage, and does so, then the retiree would be eligible for exchange subsidies, depending on his or her income. Health savings accounts (HSAs) and health reimbursement arrangements (HRAs). HSAs are not MEC and therefore not subject to the section 6055 reporting, although the underlying high-deductible health plan is MEC. HRAs that are integrated with a health plan are not subject to separate reporting. However, standalone retiree-only HRAs are considered MEC and thus will be subject to reporting. What information is included in section 6055 reporting? The information required to be reported (see sidebar on page 3) includes TINs for covered individuals. Treasury recognizes that plan sponsors may not always have TINs for dependents and other individuals. Penalties for failure to provide a TIN may be waived where the reporting entity demonstrates that it acted responsibly in attempting to obtain the information. Generally, an entity will be considered to have acted responsibly if after an initial, unsuccessful request for a TIN, it makes at least two successive annual TIN requests. Buck comment. Plan sponsors should develop a process for collecting dependent TINs (Social Security numbers) to demonstrate that they ve made a reasonable effort to obtain that information. 4

The proposed regulations simplify the reporting requirements by not requiring reporting of: An individual s specific dates of coverage. Only the months in which an individual had coverage must be reported. (For purposes of the individual mandate, an individual who has MEC on any day in a month is treated as having MEC for the entire month.) The employer-paid portion of premium. Comments are requested on other possible approaches to simplifying reporting, such as having combined reporting for applicable large employers with self-insured plans who must report under both sections 6055 and 6056. Buck comment. While the proposed regulations encourage voluntary reporting for both sections 6055 and 6056 for 2014, Treasury acknowledges that plan sponsors cannot practically prepare even voluntary reporting without final guidance. When and how must MEC information be reported to the IRS? The first year for which MEC reporting will be required is 2015. The proposed regulations contemplate that plan sponsors will submit one transmittal form to the IRS (Form 1094-B) with a separate form (Form 1095-B or a substitute form) for each individual with MEC. Sponsors of plans that are required to file at least 250 returns of any type during a calendar year (such as Forms W-2 or employment tax returns) must file electronically; those that are not required to file electronically may choose to do so. Reporting is done on a calendar year basis and not on a plan year basis. Reports of MEC provided during a calendar year are due by the March 31 immediately following the end of that year, if filed electronically, and by February 28 immediately following the end of the year, if not filed electronically. Thus, the first electronic IRS filing (for 2015) will be due no later March 31, 2016, and non-electronic filers will have to file by February 28, 2016. When and how must MEC information be reported to individuals? The plan sponsor must also provide a separate statement to the responsible party, generally the primary insured employee or former employee through whom coverage is obtained. This statement may be a copy of Form 1095-B provided to the IRS or a substitute form that contains similar information and satisfies certain other requirements. The statement must be provided by the January 31 immediately following the calendar year being reported. Because January 31, 2016 is a Sunday, statements for 2015 MEC must be furnished by February 1, 2016. The proposed regulations provide that these statements may use an IRS truncated TIN in lieu of the full number on the form submitted to the IRS. The statements may be delivered electronically, but only if consent, notice, and other procedural requirements are met. Buck comment. Unlike the ERISA electronic disclosure rules, the consent requirements also apply to statements furnished to employees with workplace access to the employer's electronic information system. This consent requirement will likely make this option of limited value to many plan sponsors. 5

What penalties apply for failure to comply with the MEC reporting requirements? The penalty for failing to file a return with the IRS is generally $100 per return, with a maximum of $1.5 million per calendar year. A separate penalty of up to $100 for each failure to provide a statement to a responsible individual, subject to a $1.5 million per calendar year maximum, may also be imposed. There is relief for failure due to reasonable cause. Code section 6056 reporting by applicable large employers What entities are subject to the reporting requirement? Only applicable large employers (ALEs), i.e., employers that employed an average of at least 50 full-time equivalent employees on business days during the preceding calendar year, are subject to Code section 6056 reporting requirements. As in the case of Code section 6055 reporting, each member of the controlled group is required to separately report information regarding its own employees. For a discussion of how status as an ALE is determined, see our For Your Information of January 30, 2013. The preamble to the proposed regulations notes that although an ALE may contract with or use a third party to satisfy its section 6056 obligations, it will remain liable for any noncompliance penalties. The one exception is for certain governmental employers, as described below. The preamble also states that Treasury and the IRS anticipate special bifurcated reporting rules for ALEs that would permit the ALE to report only for those employees who do not participate in a multiemployer plan, while the multiemployer plan(s) would report on those employees who participate in the multiemployer plan on behalf of the ALE. The ALE have to sign the return prepared by the multiemployer plan and would still be responsible for any penalties. Governmental employers. Similar to the proposed regulations under section 6055, the proposed regulations also include a provision that permits an ALE that is a governmental unit to designate a related entity to fulfill its reporting and disclosure obligations. The designation must be in writing and must satisfy specified content requirements. What information is included in section 6056 reporting? Extensive information is required for each full-time employee (see sidebar on page 7 for details). According to the preamble to the proposed regulations, the following additional information may also be requested in final guidance. To help simplify the reporting, Treasury and the IRS anticipate that indicator codes may be used for some of the employer information and for all of the full-time employee information: Employer information: Whether the coverage provided to the employee and dependents (children) satisfied the minimum value requirement Whether the employee had the opportunity to enroll his or her spouse in the coverage The total number of employees, by calendar month Whether the employee s effective date of coverage was affected by a waiting period Any months in which the employer was not conducting business If the employer expects not to be an ALE the following year 6

If the employer is a member of a controlled group, the name and EIN of each member of the controlled group Whether a full-time employee is eligible to participate in a multiemployer plan due to the employer s contribution to a multiemployer plan The name, address, and identification number of the multiemployer plan, if the administrator of the multiemployer plan is reporting on the behalf of the employer for its full-time employees In the case of a governmental employer, the name, address, and identification number of any appropriately designated entity that is reporting on behalf of such employer Information about full-time employees by month: Whether MEC that satisfied the 60% minimum value was offered to the employee only, to the employee and his or her children only, to the employee and spouse only, or to the employee, spouse, and children If coverage was not offered to the employee, whether it was because the employee was in a waiting period, was not a full-time employee, was not employed during that month, or for any other reason If coverage was offered to the employee although the employee was not a fulltime employee Whether the employer satisfied one of the affordability safe harbors for the employee The guidance requests comments on other possible approaches to simplifying reporting compliance, including What information is included in section 6056 reporting? An ALE generally would be required to report the following for each full-time employee: Employer information: Employer name, address, and employer identification number (EIN) Name and telephone number of employer s contact person Calendar year for reported information Certification of whether employer offered its full-time employees and their dependents (children to age 26) MEC by calendar month Number of full-time employees for each month of the calendar year Information about full-time employees: Name, address, and tax identification number (TIN), and months, if any, that employee was covered under the plan Employee s share of the lowest cost monthly premium (self-only) for coverage providing 60% minimum value offered to that full-time employee, by calendar month The months during the calendar year when coverage under employer plan was available Any additional information required under future guidance and instructions 7

combined reporting under section 6055 and 6056 Simplification of section 6056 reporting The reporting approach described above is referred to in the preamble to the proposed regulations as the general reporting method. The preamble also describes other potential simplified methods under consideration. These methods would be optional for the employer, and could be used for subsets of employees. Replace the section 6056 statements with expanded Form W-2 reporting for certain groups of employees. It is anticipated that this approach would be used for an employee employed for the entire calendar year where the coverage, contributions, and covered individuals did not change during that year. Eliminate the requirement to identify full-time employees if minimum value coverage is offered to all full-time employees. Employers that offer coverage to nearly all employees and can accurately represent that only non-full-time employees are not offered coverage could use this approach. Modify section 6056 reporting for self-insured employers that offer employees, spouses, and children non-contributory coverage that satisfies the 60% minimum value. Since none of these individuals would be eligible for premium tax credits in the exchanges, rather than report the full section 6056 information, a code could be included in the Form W-2 with summary information included in the section 6056 transmittal form. Report voluntarily during or prior to the year of coverage. Reporting of section 6056 information could be done prior to the deadlines. For example, prior to the employer or exchange open enrollment periods. Reduced reporting requirements for employees ineligible for the premium tax credit based on income. Employees with sufficiently high incomes would be ineligible for exchange subsidies. Use combinations of simplified reporting methods. Different simplified reporting approaches could be used for different groups of employees. Employers and other interested parties are asked to comment on these proposed options. When and how must ALEs report information to the IRS? The reporting rules for ALEs are similar to those described above for MEC reporting. Thus, reporting is done on a calendar year basis, and 2015 is the first year for which reporting will be required. The rules regarding electronic filing are the same. The proposed regulations contemplate that the ALE will submit one transmittal form to the IRS (Form 1094-C) with a separate form (Form 1095-C or a substitute form) for each full-time employee. When and how must ALEs provide statements to full-time employees? The ALE must also provide a separate statement to each full-time employee. This statement may be a copy of the Form 1095C provided to the IRS or a substitute form that contains similar information and satisfies certain other requirements. The statement must be provided by the January 31 immediately following the calendar year being reported. As with MEC statements, truncated tax identification number may be used and statements may be delivered electronically, if certain conditions are satisfied. What penalties apply for failure to comply with the ALE reporting requirements? The penalties for failing to file a return with the IRS or to provide statements to full-time employees are the same as for failures to comply with the MEC reporting rules discussed above. 8

In closing While the section 6055 and 6056 reporting requirements are not effective until 2015, collecting and preparing the required information will be a significant effort for many employers. Employers should determine what required data items need to be collected for reporting. Summary of plan sponsor section 6055 and 6056 reporting The following table summarizes the key reporting requirements for sponsors of group health plans. Group Health Plan Reporting What is primary purpose of reporting? To which employers does reporting apply? Section 6055 reporting Enforce the individual mandate by reporting minimum essential coverage (MEC) All size employers who offer MEC Section 6056 reporting Enforce the employer shared responsibility provisions, and assist individuals in determining eligibility for premium tax credits Applicable large employer employed an average of at least 50 full-time or full-time equivalent employees on business days during prior calendar year Each member of a controlled group must separately comply with these requirements. Until further guidance, governmental entities and churches may apply a reasonable, good faith interpretation of the controlled group. While reporting can be coordinated by one party, each member of the controlled group has the reporting obligation Who is responsible for reporting? Self-insured group plans Employer Employer Insured group plans Insurer Employer Multiemployer plans Board of trustees, association, committee, or other similar group Employer; but administrator can report on behalf of contributing employers Self-insured government employer Employer Employer Employer can designate one or more other government units/agencies as the reporting entity for all employees or different categories of employees Small business health insurance options program (SHOP) plans sold in marketplaces Insurer Not applicable 9

Group Health Plan Reporting Government-sponsored programs (e.g., Medicare, Medicaid, TRICARE, CHIP, Medicare Advantage, etc.) Appropriate federal or state government agency Not applicable Group Health Plan Reporting Which individuals are included in reporting? Section 6055 reporting Any individual enrolled in MEC, including: Full-time employees Part-time employees Pre-Medicare retirees Medicare retirees COBRA beneficiaries Dependents of above Section 6056 reporting All full-time employees and their dependents (children) regardless of whether they were offered MEC To determine full-time employee status all hours across the controlled group are combined What information must be reported? What is the IRS filing due date? For what year is reporting first required? What is the due date for furnishing the individual statement? Can the individual statement be delivered electronically? See summary in body of FYI for Section 6055 and Section 6056 reporting A separate transmittal form for each of section 6055 and 6056 with the individual statements is due to the IRS by the March 31 immediately following the reporting calendar year, if filed electronically. Electronic filing is required if 250 or more individual returns (February 28 if not electronic filing) The first year of reporting is for the 2015 calendar year Calendar year reporting is required, regardless of the plan year A separate statement under section 6055 to the primary insured and under section 6056 to the full-time employee is required by the January 31 immediately following the reporting calendar year. Only one of each statement is required per address Electronic delivery is permitted, but only if certain notice, individual consent, and software and hardware requirements are met. The requirement that electronic 10

Group Health Plan Reporting distribution of the statements follow requirements similar to providing the Form W-2 electronically will likely make this of limited Who must receive the individual statement? Responsible party, generally employee or former employee through whom coverage obtained What reporting forms are used? Employer Transmittal Form 1094-B Employee statement Form 1095-B Employer Transmittal Form 1094-C Employee statement Form 1095-C A substitute statement that includes the information required by both section 6055 and 6056 may be permitted in future guidance What penalties apply for failure to provide to IRS or individuals? Generally $100 per return, with a maximum of $1.5 million. Applies separately to section 6055 and 6056 reporting. There is relief for failure due to reasonable cause Authors Richard Stover, FSA Leslye Laderman, JD, LLM Produced by the Knowledge Resource Center of Buck Consultants at Xerox The Knowledge Resource Center is responsible for national multi-practice compliance consulting, analysis and publications, government relations, research, surveys, training, and knowledge management. For more information, please contact your account executive or email fyi@xerox.com. You are welcome to distribute FYI publications in their entireties. To manage your subscriptions, or to sign up to receive our mailings, visit our Subscription Center. This publication is for information only and does not constitute legal advice; consult with legal, tax and other advisors before applying this information to your specific situation. 2014 Xerox Corporation and Buck Consultants, LLC. All rights reserved. Xerox and Xerox and Design are trademarks of Xerox Corporation in the United States and/or other countries. Buck Consultants is a registered trademark of Buck Consultants, LLC in the United States and/or other countries. 11