After four long years of discussion, confusion, delay, and public exchange glitches, the Affordable Care Act (ACA) has gone into full effect. For those employers that are prepared, it is mostly business as usual. For those that delayed and thought it would be easy to implement closer to reporting time, the realization that requirements may not be so simple is likely beginning to set in.
Most employers have taken the necessary steps to ensure the offer of minimum essential and minimum value coverage for their eligible populations for 2015. However, there is continued confusion regarding who is measurable under the definition of a full-time employee—both new employees as well as those considered ongoing.
Also, the reporting hurdle (with correct and timely information as demanded by the IRS to ensure validation and reconciliation of the Employer and Employee Responsibility Mandates under the law that is both auditable and defensible) is not so simple. The major complicating factor for reporting is that all of the required information has never been housed in any one system before. Disparate data, in multiple systems, must be managed, accumulated, and reported, along with the offer of coverage and new indicator codes specific to 4980H. This is complex information that is not currently managed or calculated in most employer systems.
IRC §6055 and §6056—Required Reporting
Below is a summary of what must be reported to employees and the IRS annually beginning in January 2016 for the 2015 plan year and every year thereafter.
Section 6056 requires employers to report information to the IRS about health care coverage offered to full-time employees in order to administer the employer shared responsibility provisions of section 4980H of the code. Section 6056 also requires those employers to furnish related statements to employees that may be used to determine (for each month of the calendar year) whether they may claim a premium tax credit on their individual tax returns under section 36B.
Section 6055 requires information reporting by any person who provides minimum essential coverage to an individual during a calendar year, which relates to the individual shared responsibility section provisions. Like Section 6056, transmittals to the IRS, as well as individual employee statements, are required. IRS transmissions are due no later than February 28 each year (March 31 if filed electronically). Employee statements must be furnished on or before January 31 of the year immediately following the calendar year to which the employee statements relate (i.e., the same day as Form W-2).
Key Reporting Provisions
The final reporting regulations include the following key provisions, which give the basic structure of what must be collected, accumulated, and reported beginning in 2016 for the 2015 calendar year.
1. Single, Combined Form for Information Reporting—Employers that self-insure are allowed to report in a single, consolidated form that can be used to report to the IRS and employees under both §6055 and §6056, thereby simplifying the process and avoiding duplicative information submissions. The combined report includes two sections: the top is for information required for §6056 reporting; the bottom includes the information required for §6055.
- Employers with less than 50 full-time employees are exempt from the employer shared responsibility provisions and are not required to report
- Employers that are considered Applicable Large Employers (ALEs) are subject to the final reporting requirements. Those who self-insure will complete both sections of the combined form. [NOTE: An Applicable Large Employer with respect to a calendar year is defined in Section 4980H(c)(2) as an employer that employed on average at least 50 full-time employees on business days during the preceding calendar year.]
- ALEs that do not self-insure will complete only the top section of the report, or information pertaining to §6056. Insurers and other providers of health coverage will only report under the bottom section (information pertaining to §6055) via a separate form for that sole purpose.
2. Simplified Option for Employer Reporting—The simplified option is provided for employers that offer a qualifying offer of coverage to any of their full-time employees. This is a simplified alternative to the monthly, employee-specific information that the general rules require.
- A qualifying offer of coverage is one that provides an offer of minimum value coverage where employee-only coverage is at a cost to the employee of no more than 9.56% of income under the General Rule. If an employer chooses to use one of the affordability safe harbors, this cost reverts to the original 9.5% of the employee’s income.
- For employees who receive a qualifying offer for all 12 months of the calendar year, employers will need to report only the names, addresses, and taxpayer identification numbers of those employees and an indicator of the fact they received a full-year qualifying offer. Employees will receive a copy of this simplified report or a standard statement for use when filing the individual tax return.
- For employees who receive a qualifying offer for less than a full 12 months of the year, employers will be able to simplify reporting to the IRS and to employees for each of those months with the use of a code indicating that the offer was made within that month.
- In keeping with the phase-in approach to the regulations, employers certifying that they have made a qualifying offer to at least 95% of their full-time employees (plus an offer to their families) will be able to use an even simpler alternative for reporting in 2015. These employers will be able to use the simplified reporting method for their entire workforce, including any employees who do not receive a qualifying offer for the full year. These employers will provide employees with standard statements relating to their potential eligibility for premium tax credits.
- The final regulations also give employers the opportunity to avoid identifying those employees who are full-time and just include in the report those employees who may be full-time. In order to take advantage of this option, the employer must certify that it offered affordable, minimum value coverage to at least 98% of the employees for whom it is reporting.
Each ALE member with full-time employees is the entity responsible for filing and furnishing statements with respect to its full-time employees under §6056. This means that the control group standards for determining ALE status is treated just like the assessment of penalties for non-compliance under the Employer Shared Responsibility provisions of 4980H. The responsibility for penalty payment and reporting lies with the ALE member. A third-party administrator (TPA) may be used to create and send the reports, but the ultimate liability remains at the employer level.
The data requirements, draft forms, and mandates on both the employer and employee are now in full effect. Large employers must begin the task of ensuring all the proper data is gathered, accumulated, and maintained. Given that much of the data required will be reported (with new and complex indicator codes), a great deal of programming and testing will be required to ensure that correct and timely reporting is ready for the 2015 calendar year if the plan is to mange this task in-house.
If systems are already in place to measure eligibility and annual form creation and submission is not programmed or a vendor has not yet been selected, the requirement to meet the data specification requirements to create and submit these forms is needed sooner rather than later. Further, because this consolidated data, with indicator codes, has never been required previously for reporting by the employer, this data has usually been housed in multiple disparate systems that are not specifically designed for audit and compliance management, which presents significant data quality risks. With the ALE responsible for both reporting and penalties, the complexity of managing this task is indeed difficult with existing system limitations.
And no system can calculate the needed data and codes without an entire year of employee (and their dependents!) information and a basis for managing how the full-time population is determined and offered minimum value coverage.