The IRS has published draft Forms 1094 and 1095 for 2020. Unlike the last few years, this year, the IRS has made several changes to its forms to accommodate for new Individual Coverage Health Reimbursement Arrangement (ICHRA) compliance. The IRS has added new data fields on Form 1095-C to include an individual’s age and zip code, “Instructions for Recipient” text has been revised and moved to page two, and eight new Line 14 codes have been created to accommodate ICHRA coverage. Even Forms 1095-B includes a new origin of coverage code to accommodate the new ICHRA plan. Instructions for these forms have not yet been released.
Draft 1094-C: https://www.irs.gov/pub/irs-dft/f1094c–dft.pdf
Draft 1095-C: https://www.irs.gov/pub/irs-dft/f1095c–dft.pdf
Draft 1094-B: https://www.irs.gov/pub/irs-dft/f1094b–dft.pdf
Draft 1095-B: https://www.irs.gov/pub/irs-dft/f1095b–dft.pdf
Background on ICHRAs
In response to an executive order from President Trump, the U.S. Departments of Treasury, Labor and Health and Human Services issued a final rule allowing employers to offer ICHRAs that reimburse employees for coverage purchased on the individual market beginning in 2020.
Employers of any size can offer ICHRA reimbursement plans to purchase individual health insurance coverage (on or off an ACA Marketplace), help pay for Medicare premiums and/or be reimbursed for qualified medical expenses.
An offer of an ICHRA to a full-time employee will be considered an offer of minimal essential coverage (MEC) and count toward satisfying the 95% threshold for employers to avoid the ACA Penalty A. The most complex issue is determining if the ICHRA is considered affordable for ICHRA plan members in order to shield an employer from the Penalty B.
Affordability is calculated by comparing the employer’s monthly ICHRA amount to the corresponding Silver Plan premium on the individual marketplace that is
- Lowest cost,
- Self only,
- At the location of the employee’s primary worksite
Traditional ACA safe harbor rules are available for calculating ICHRA affordability. In addition, there are ICHRA specific safe harbor rules such as how to determine the employee’s primary worksite and lookback month for determining the sliver plan premium that must be supported.
To support measuring affordability of an ICHRA plan, employers who choose to administer ICHRA plans will need to include additional information (such as zip codes and employees age) on their Forms 1095 and use new IRS codes.
Changes to your Form 1095-C
There are a number of changes to discuss regarding your Draft 1095-C forms that are applicable for employers who are choosing to implement ICHRA plans.
- For starters, a new field in Part II of the form now requires employers who offer ICHRA plans to provide the employee’s age.
- A second change in Part II occurs in line 17 with the addition of a new row asking for the employee’s zip code for each and every month. This will also be used for ICHRA affordability calculations.
- The final change in Part II occurs in line 14 with seven new series 1 codes, all added to accommodate ICHRAs. This means you will be required to enter the appropriate offer of coverage code in each section, similar to the employee zip code section, providing a much more holistic view of your coverage offerings.
Now let’s look at the list of new instruction addendums added to Form 1095-C. They focus on HRAs and the following language appears directly as follows:
1L. Individual coverage health reimbursement arrangement (HRA) offered to you only with affordability determined by using employee’s primary residence location ZIP code.
1M. Individual coverage HRA offered to you and dependent(s) (not spouse) with affordability determined by using employee’s primary residence location ZIP code.
1N. Individual coverage HRA offered to you, spouse and dependent(s) with affordability determined by using employee’s primary residence location ZIP code.
1O. Individual coverage HRA offered to you only using the employee’s primary employment site ZIP code affordability safe harbor.
1P. Individual coverage HRA offered to you and dependent(s) (not spouse) using the employee’s primary employment site ZIP code affordability safe harbor.
1Q. Individual coverage HRA offered to you, spouse and dependent(s) using the employee’s primary employment site ZIP code affordability safe harbor.
1R. Individual coverage HRA that is NOT affordable offered to you; employee and spouse or dependent(s); or employee, spouse, and dependents.
Changes to your Form 1095-B
There is only one change to Draft Form 1095-B in the new IRS governance and you’ll find it in Part 1, line 8, Origin of Health Coverage. New to the form is an option value “G” for ICHRA plans. According to the form, option G should be checked if the individual’s coverage counts as an “Individual coverage health reimbursement arrangement (HRA).”
A word on Forms 1094-B and 1094-C
As of now the IRS has released no new guidance or changes to Forms 1094 forms B and C and is yet to release the corresponding Form Instructions for 2020 1094 & 1095 B or C forms.
At Health e(fx) we’re consistently following new guidance issued by the IRS. We will continue to provide updates as the new form instructions are published, or more information is received. For more information on avoiding ACA penalties during a time of workforce and regulatory changes, please see our recent article published in BenefitsPRO, COVID-19 and the risk of ACA employer penalties: 3 FAQs.