The IRS has published 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 Form 1095-B includes a new origin of coverage code to accommodate the new ICHRA plan. Instructions for Forms 1094-C, 1095-C, 1094-B and 1095-B have not yet been released.
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 percent 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,
- or the location of the employee
Traditional ACA safe harbor rules are available for calculating ICHRA affordability. In addition, there are ICHRA specific safe harbor rules such as the location safe harbor and the look-back-month safe harbor to determine the ICHRA’s affordability for the current year. Under the location safe harbor, the employer may determine an employee’s required ICHRA contribution for a calendar month, based on the cost of the applicable lowest-cost silver plan for the location of the employee’s primary place of employment. The proposed regulations provide guidance to help determine primary place of employment for cases where it is not clear. The look-back-month safe harbor allows a calendar-year ICHRA to use the cost of the lowest-cost silver plan offered on the public exchange in the employee’s rating area during January of the prior year. For an ICHRA with a plan year that is not the calendar year, an ALE may use the monthly premium for the applicable lowest-cost silver plan for January of the current calendar year.
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 several changes to discuss regarding the forms that are applicable for employers who are choosing to implement ICHRA plans.
Employers should take note of the following:
- Employee’s Age on January 1. Part II of the 2020 Form 1095-C now requires an employer to enter the employee’s age as of the beginning of the calendar year.
- ZIP Code. The embedded Instructions for Recipient section in Form 1095-C indicates that employers that offer ICHRAs to employees must disclose the employees’ ZIP Codes if the employer uses the employee’s location to determine affordability as provided in IRS proposed regulations.
- Additional codes related to offers of ICHRAs. The embedded Instructions for Recipient section provides a brief description of an additional set of ICHRA-related codes that may be reported on Part II, Line 14 by employers that over ICHRAs. These codes add to the existing list of codes that employers may use to describe the type of coverage that was offered. The additional codes are used to indicate the various types of ICHRA coverage offered by the employer.
- Part III moved. Part III is now on Page 3 in the 2020 Form 1095-C.
Changes to your Form 1095-B
There is only one change to 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).”
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.