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The COVID-19 extensions that the DOL and IRS had issued last year as part of their “Joint Notice” were set to expire at midnight on February 28th. For weeks, many have been asking the DOL and IRS for guidance on how to handle the statutorily-mandated expiration, and as a result of the lack of guidance, most plans, TPAs, insurers, and COBRA administrators had to make a judgment call as to how to proceed.
But – with 2 days to spare – DOL finally issued Disaster Relief Notice 2021-01 on February 26th.
Notice 2021-01 sets forth the DOL and IRS’ position that the COVID-19 extensions will continue past February 28th, and that all such extensions must be measured on a person-by-person basis – which was not clear from the prior guidance. Plans, TPAs, insurers, and COBRA administrators may have to reconsider their administrative practices in light of this new direction.
The original Joint Notice (85 Fed. Reg. 26351 (May 4, 2020) required that health and retirement plans toll a number of deadlines for individuals during the COVID-19 National Emergency, plus a 60-day period (the “Outbreak Period”) starting March 1, 2020.
But, as described in Footnote 4 of the Joint Notice, ERISA and the Code limit DOL and Treasury’s ability to toll deadlines to one year (“Tolling Period”).
The deadlines impacted in the Joint Notice are:
When there has been disaster relief guidance in the past, these periods have not bumped up against the statutorily-imposed one-year limit, so this COVID-19 extension is new territory – hence all the requests for the agencies to issue guidance regarding the expiration date.
In this late-breaking Notice 2021-01, DOL says it coordinated with HHS and IRS, and the agencies are interpreting the Tolling Period to be read on a person-by-person basis.
Specifically, DOL says that the Tolling Period ends the earlier of:
This means that each individual has his or her own Tolling Period!
For example, a COBRA Qualified Beneficiary (QB) has 60 days to elect COBRA, counted from the later of their loss of coverage or the date their COBRA election notice is provided. Under the Joint Notice, a QB’s 60-day deadline was tolled as of March 1, 2020, until the end of the Outbreak Period (that is, until the end of the National Emergency + 60 days).
At the end of the Outbreak Period, the deadlines would start running again, and the QB would have their normal 60-day COBRA election period (or the balance of their election period if it started before March 1, 2020).
BUT – with the 1-year expiration, DOL’s new Notice 2021-01 says that the one-year period does not end on February 28, 2021 for all individuals, but rather each individual has his/her own one-year Tolling Period.
For all of these examples, the tolling would end earlier if the National Emergency ends. In that case, the election period would end 60 days after the end of the National Emergency.
Notice 2021-01 also says that DOL recognizes that enrollees may continue to encounter COVID issues, even after the one-year Tolling Period expiration. DOL says that the “guiding principle” is for plans to act reasonably, prudently, and in the interest of the workers and their families. DOL says that plan fiduciaries should make “reasonable accommodations to prevent the loss of or undue delay in payment of benefits . . . and should take steps to minimize the possibility of individuals losing benefits because of a failure to comply with pre-established time frames.”
Notice 2021-01 does not provide any direction regarding what would constitute a “reasonable accommodation.” It sounds like plans may need a process to consider whether to continue to waive deadlines on a case-by-case basis, but without any guidance as to what parameters to apply. And DOL suggests that failure to do so could be a fiduciary issue.
Regarding communicating these changes to enrollees, DOL says:
DOL seems to be saying that plans may need to notify each individual when his or her one-year extension is about to be up and should include information about the Health Insurance Marketplace. In addition, plans may need to update prior communications that did not anticipate this new DOL interpretation.
DOL says it acknowledges that there may be instances when plans or service providers themselves may not be able to fully and timely comply with pre-established timeframes and disclosure requirements. DOL says that where fiduciaries have acted in “good faith and with reasonable diligence under the circumstances,” DOL’s approach to enforcement will be “marked by an emphasis on compliance assistance,” including grace periods or other relief.
Days before his inauguration, President-elect Joe Biden outlined an agenda for COVID-19 relief and economic recovery that includes federal aid for health care expenses, such as providing subsidized COBRA coverage.
The relief and stimulus proposals in Biden’s $1.9 trillion American Rescue Plan package range from asking Congress for additional $1,400 checks for low- and middle-income wage earners to reimbursing employers with 500 or fewer employees for providing paid leave. Other provisions focus on helping consumers with health care expenses.
According to a Jan. 14 fact sheet from the Biden-Harris transition team, the new administration will immediately ask Congress to:
“Roughly two to three million people lost employer-sponsored health insurance between March and September, and even families who have maintained coverage may struggle to pay premiums and afford care,” according to the transition team’s fact sheet. “Together, these policies would reduce premiums for more than 10 million people and reduce the ranks of the uninsured by millions more.”
Employers may require terminated workers who choose to continue coverage under the employer-sponsored health plan for up to 18 months to pay for COBRA coverage, with premiums limited to the full cost of the coverage plus a 2 percent administration charge. That cost, however, is not affordable for many newly unemployed workers.
During the pandemic, some employers are choosing to pay for the COBRA coverage of former employees who were laid off, or to do so for current employees who lost group health plan coverage when they were furloughed or had their hours reduced.
Last April, the Department of Labor and the IRS issued regulations extending the deadlines for COBRA notices, elections and premium payments from March 1, 2020, until 60 days after the end of the ongoing COVID-19 national emergency. “While the usual statutory penalties for COBRA violations should not apply [for now], failing to notify COBRA-qualified beneficiaries of their rights may increase the likelihood of a breach of fiduciary duty claim,” Emily Meyer, an attorney with Cohen & Buckman in New York City, wrote in November.
Among other health care-related agenda items, the new administration will ask Congress to:
The fate of the health care provisions is uncertain at this time. Congressional Democrats welcomed Biden’s proposals. Rep. Steven Horsford, D-Nev., for instance, issued a statement saying he was “glad to see that the plan provides critical subsidies [for COBRA and ACA plans] to help American families access health care during this critical time.”
Republicans have criticized the extent of the new proposals, estimated to cost an addition $1.9 trillion over existing relief. Efforts by Congress “should be strategic, focusing on families and small businesses in need,” said Sen. Rick Scott, R-Fla.
Last week the Department of Health and Human Services, DOL and the IRS extended deadlines for multiple items related to health plan administration. We don’t expect a huge influx of issues from the changes. However, you should be aware so you don’t inadvertently misinform your employees.
There were changes made regarding COBRA premium payments and election timeframes but since we have addressed those in a previous post, we won’t address it here. COBRA administration is outsourced and those impacted are no longer employees so you can direct their questions to your COBRA administrator or to our office. We’ll also skip the changes made to claims and appeals as that won’t apply to everyone. That leaves the changes to your benefit program.
As you are aware, most of the carriers have reduced or even eliminated the minimum number of hours a previously full-time employee must work to be covered by your plan. Meaning, we can offer coverage to furloughed employees or those that have otherwise reduced hours to below the full-time requirements.
In addition, the agencies, have decided to disregard the Outbreak Period (the time period between March 1st and at least 60 days after the announced end of the COVID 19 National Emergency) when establishing a deadline to request enrollment in coverage for certain qualifying events. Meaning, the agencies, added a “pause” to the time frame required for employees to notify you about special enrollment periods, such as marriage or birth of a child. We are not able to determine the exact end date of the Outbreak Period yet as that is based on an end to the National Emergency (and that had yet to be determined).
For our examples, we’ll assume the COVID 19 National Emergency ends for the country on June 30th. This would make the Outbreak Period March 1st to August 29th (60 days following June 30).
Example 1 – Sally has a baby on March 3rd. Normally, she would have 30 days to notify us that she would like to add the baby. However, you are being instructed to disregard the Outbreak Period, therefore she has until September 28th (30 days from the end of the Outbreak Period) to let us know her desire to add her child.
Example 2 – Tom gets married June 1st. He will have until September 28th to let us know if he intends to enroll his spouse.
Under these examples, the dependents would be enrolled back to their original eligibility date and the employee would owe those back premiums. I don’t expect this to become a big issue, however, depending on the employees circumstances it could. The drawback to employers, other than the inconvenience, is this could have an impact on the group claims. Normally Tom and Sally would only have 30 days to enroll their dependents. With the extensions, employees have information about any issues or medical expenditures that have already happened along the way. Carriers will be responsible to back up, enroll the dependent, and pay any claims incurred.
Please let us know of any questions you have.
On April 29, 2020, the Department of Labor (DOL) and the Internal Revenue Service (IRS) announced in a Notice a “pause” in the timelines that affect many COBRA and HIPAA Special Enrollment Period timelines during the National Emergency due to the COVID-19 pandemic.
The National Emergency declaration for COVID-19 was issued on March 13, 2020, and as of the date of this writing, is still in effect. However, for purposes of COBRA in the eyes of the DOL, the “pause” date is set to begin on March 1, 2020. According to the Notice, the period from March 1 through 60 days after the date the National Emergency is declared ended is known as the “Outbreak Period.”
Normally, group health plan Qualified Beneficiaries (QBs) have 60 days from the date of a COBRA qualifying event to elect COBRA coverage, or in the case of a second COBRA qualifying event, to make a new COBRA election. Once a COBRA election is made, the first payment (going back to the date of the COBRA qualifying event) is due no more than 45 days later. After that, plan sponsors must allow at least a 30 day grace period for late COBRA payments.
According to the Notice, all of these timelines are affected. The 60-day election “clock” is paused beginning March 1, 2020 or later until the the end of the Outbreak Period. Similarly, the 45-day first payment “clock” is also paused during the Outbreak Period, as is the 30-day grace period for making COBRA payments.
ABC Company’s group health plan is subject to COBRA continuation coverage. Jane Jetson and her family are covered under ABC’s group health plan. On February 1, 2020 Jane terminates employment at ABC, and on February 5th, Jane receives her COBRA election notice informing her she has 60 days from February 1st to make an election. Normally, that election period would end on April 1, 2020, 60 days from February 1st.
However, with the new DOL/IRS Notice, the “pause” button on the 60 day election period was hit on March 1st, the beginning of the Outbreak Period, so the 60 day clock stops at 29 days and doesn’t resume until the end of the Outbreak Period. For sake of this example, let’s assume the National Emergency declaration is lifted on May 31, 2020. On July 30, 2020, 60 days after May 31st and thus the end of the Outbreak Period, the “pause” button is lifted and the COBRA election clock restarts for another 31 days to complete the 60 day COBRA election period, which now would end on August 30, 2020.
Continuing with the example and assumptions, if Jane did make her COBRA election to continue coverage on August 30th (the last day to do so), the 45 day clock to make the first payments back to February 1st would begin, and she would have to make all seven months’ payments by October 14, 2020. Of course, by that date she’d also owe payments for September and October as well, although she’d be in the middle of the grace period for October.
Similarly, the 30 day HIPAA Special Enrollment Period (SEP) for qualified changes of status that impacts group health plan enrollment changes is also “paused” until after the end of the Outbreak Period.
Homer Simpson also works for ABC Company, and has elected not to participate in ABC’s group health plan since he has coverage through his spouse Marge’s employer’s group health plan at XYZ Company. On March 15, 2020, Homer and Marge have a baby named Bart, and decide that Homer would like to cover his entire family under ABC’s plan. In normal times, Homer would have 30 days from the date of Bart’s birth to enroll in ABC’s group health plan utilizing the HIPAA SEP.
However, under the DOL/IRS Notice, that 30-day clock is on “pause” until the end of the Outbreak Period. Using the same assumption in the example above, that clock would start on July 30th, and Homer would have until August 30th to enroll his entire family.
Plan sponsors will need to pay close attention to this Notice and make proper adjustments in their established COBRA and HIPAA procedures to accommodate it.
Until very recently, employers were at risk of receiving steep fines if they reimbursed employees for non-employer sponsored medical care – the Affordable Care Act (ACA) included fines of up to $36,500 a year per employee for such an action. Late in 2016, however, President Obama signed the 21st Century Cures Act and established Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). As of January 1, 2017, small employers can offer these tax-free medical care reimbursements to eligible employees.
If an employee incurs a medical care expense, such as health insurance premiums or eligible medical expenses under IRC Section 213(d), the employer can reimburse the employee up to $4,950 for single coverage or $10,000 for family coverage. Employees may not make any contributions or salary deferrals to QSEHRAs.
The maximum amount must
be prorated for those not eligible for an entire year. For example, an employer
offering the maximum reimbursement amount should only reimburse up to $2,475 to
an employee who has been working for the company for six months. For a complete
list of medical expenses covered under IRC 213(d), see https://www.irs.gov/pub/irs-pdf/p502.pdf.
Employers may tailor which expenses they will reimburse to a certain extent,
and do not have to reimburse employees for all eligible medical expenses.
Much like other healthcare reimbursement arrangements, employees may have to provide substantiation before reimbursement. The IRS has discretion to establish requirements regarding this process, but has not yet done so. Although reimbursements may be provided tax-free, they must be reported on the employee’s W-2 in Box 12 using the code “FF.”
To offer QSEHRAs, an employer cannot be an applicable large employer (ALE) under the ACA. Only employers with fewer than 50 full-time equivalent employees can offer this benefit. Further, a group cannot offer group health plans to any employees to qualify.
Typically, an employer that chooses to offer a QSEHRA must offer it to all employees who have completed at least 90 days of work. The few exceptions to this rule include part-time or seasonal employees, non-resident aliens, employees under the age of 25, and employees covered by a collective bargaining agreement.
Employers may offer differing reimbursement amounts based on employee age or family size. However, such variances must be based on the cost of premiums of a reference policy on the individual market. It is currently unclear which reference policy will be selected or how permitted discrepancies will be calculated.
To be eligible for a tax-free reimbursement, employees must have proof of minimum essential coverage. It is uncertain how closely employers will have to scrutinize such proof, although guidance will hopefully be available soon.
Eligible employees must disclose to health exchanges the amount of QSEHRA benefits available to them. The exchanges will account for the reported amount, even if the employee does not utilize it, and will likely reduce the amount of the subsidies available. Employers should take this into account before adopting a QSEHRA.
In order to establish a QSEHRA, employers will have to set up and administer a plan. Group health plan requirements, such as ACA reporting and COBRA requirements, do not apply to QSEHRAs. But in order to properly provide reimbursements to employees, employers will likely have to establish reimbursement procedures.
Additionally, any eligible employees must be notified of the arrangements in writing at least 90 days before the first day they will be eligible to participate. For the current year, the IRS is giving employers who implement QSEHRAs an extension until March 13, 2017 to provide a notice. The notice must provide the amount of the maximum benefit, and that eligible employees inform health insurance exchanges this benefit is available to them. It also must inform eligible employees they may be subject to the individual ACA penalties if they do not have minimum essential coverage.
Earlier this week, President Obama signed the 21st Century Cures Act (“Act”). This Act contains provisions for “Qualified Small Business Health Reimbursement Arrangements” (“HRA”). This new HRA would allow eligible small employers to offer a health reimbursement arrangement funded solely by the employer that would reimburse employees for qualified medical expenses including health insurance premiums.
The maximum reimbursement that can be provided under the plan is $4,950 or $10,000 if the HRA provided for family members of the employee. An employer is eligible to establish a small employer health reimbursement arrangement if that employer (i) is not subject to the employer mandate under the Affordable Care Act (i.e., less than 50 full-time employees) and (ii) does not offer a group health plan to any employees.
To be a qualified small employer HRA, the arrangement must be provided on the same terms to all eligible employees, although the Act allows benefits under the HRA to vary based on age and family-size variations in the price of an insurance policy in the relevant individual health insurance market.
Employers must report contributions to a reimbursement arrangement on their employees’ W-2 each year and notify each participant of the amount of benefit provided under the HRA each year at least 90 days before the beginning of each year.
This new provision also provides that employees that are covered by this HRA will not be eligible for subsidies for health insurance purchased under an exchange during the months that they are covered by the employer’s HRA.
Such HRAs are not considered “group health plans” for most purposes under the Code, ERISA and the Public Health Service Act and are not subject to COBRA.
This new provision also overturns guidance issued by the Internal Revenue Service and the Department of Labor that stated that these arrangements violated the Affordable Care Act insurance market reforms and were subject to a penalty for providing such arrangements.
The previous IRS and DOL guidance would still prohibit these arrangements for larger employers. The provision is effective for plan years beginning after December 31, 2016. (There was transition relief for plans offering these benefits that ends December 31, 2016 and extends the relief given in IRS Notice 2015-17.)
The Affordable Care Act (“ACA”), introduced in 2014 the Transitional Reinsurance Fee (“Fee”) in an effort to fund reinsurance payments to health insurance issuers that cover high-risk individuals in the individual market and to stabilize insurance premiums in the market for the 2014 through 2016 years. The Fee has also been instituted to pay administrative costs related to the Early Retiree Reinsurance Program.
BACKGROUND ON TRANSITIONAL REINSURANCE PROGRAM
The ACA established a transitional reinsurance program to provide payments to health insurance issuers that cover high risk individuals in an attempt to evenly spread the financial risk of issuers. The program is designed to provide issuers with greater payment stability as insurance market reforms are implemented and the state-based health insurance exchanges/marketplaces facilitate increased enrollment. It is expected that the program will reduce the uncertainty of insurance risk in the individual market by partially offsetting issuers’ risk associated with high-cost enrollees. In an effort to fund the program, the ACA created the Fee which is a temporary fee that is assessed on health insurance issuers and plan sponsors of self-funded health plans. The Fee is applicable for the 2014, 2015 and 2016 years and is deductible as an ordinary and necessary business expense.
The Fee is generally applicable to all health insurance plans providing major medical coverage including sponsors of self-insured group health plans. Major medical coverage is defined as health coverage for a broad range of services and treatments, including diagnostic and preventive services, as well as medical and surgical conditions in inpatient, outpatient and emergency room settings. Since COBRA continuation coverage generally qualifies as major medical coverage, the Fee will also apply in this instance. It does not, however, apply to employer provided major medical coverage that is secondary to Medicare.
The Fee, as currently structured, does not apply to various other types of plans including (but not limited to) health savings accounts (H.S.A.s), employee assistance plans (EAP) or wellness programs that do not provide major medical coverage, health reimbursement arrangements integrated with a group health plan (HRA), health flexible spending accounts (FSA) and coverage that consists of only excepted benefits (e.g. stand-alone dental and vision).
AMOUNT OF THE FEE
The Fee for the 2015 benefit year is equal to $44 per covered life. It is expected that the Fee for the 2015 benefit year will generate approximately $8 billion in revenue. The Fee for the 2016 year is expected to be $27 per covered life and will raise approximately $5 billion in revenue. Thereafter, the Fee is set to expire and no longer be applicable. The fee for 2014 was $63 per covered life.
REPORTING THE NUMBER OF COVERED LIVES AND PAYING THE FEE
The 2015 ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form will be available on www.pay.gov on October 1, 2015. The form for 2014 is also available on this website. Please note there is a separate form for each benefit year. For the 2015 year, the number of covered lives must be reported to the Department no later than November 16, 2015. The Department will then notify reporting organizations no later than December 15, 2015 the amount of the fee that will be due and payable.
As with the 2014 benefit year, the Department of Health and Human Services has given contributing entities two different options to make the payment. Under the first option, the first portion of the Fee ($33 per covered life) is due and payable no later than January 15, 2016 (30 days after issuance of the notice from the Department). This portion of the Fee will cover reinsurance payments and administrative expenses. The second portion of the Fee ($11 per covered life) will cover Treasury’s administrative costs associated with the Early Retiree Reinsurance Program and will be due no later than November 15, 2016.
Under the second payment option, contributing entities can opt to pay the full amount ($44 per covered life) by January 15, 2016.
As the number of covered lives is due to be reported no later than November 16th of this year, employers should review their types of health coverage and determine which plans are subject to the Fee. Employers that have fully insured plans should be on the lookout for potential increased premiums as the insurance carrier is responsible to report and pay the Fee on behalf of the plan in these instances. Those with self funded medical coverage need to be sure to report and pay the fe
The IRS and the Treasury Department issued a notice on the so-called “Cadillac Tax”—a 40 percent excise tax to be imposed on high-cost employer-sponsored health plans beginning in 2018 under the Affordable Care Act (ACA).
Notice 2015-16, released on Feb. 23, 2015, discusses a number of issues concerning the tax and requests comments on the possible approaches that ultimately could be incorporated in proposed regulations. Specifically, the guidance states that the agencies anticipate that pretax salary reduction contributions made by employees to health savings accounts (HSAs) will be subject to the Cadillac tax.
In 2018, the ACA provides that a nondeductible 40 percent excise tax be imposed on “applicable employer-sponsored coverage” in excess of statutory thresholds (in 2018, $10,200 for self-only, $27,500 for family). As 2018 approaches, the benefit community has long awaited guidance on this tax. While many employers have actively managed their plan offerings and costs in anticipation of the impact of the tax, those efforts have been hampered by the lack of guidance. Among other things, employers are uncertain what health coverage is subject to the tax and how the tax is calculated.
Particularly, Notice 2015-16 addresses:
The agencies are requesting comments on issues
discussed in this notice by May 15, 2015. They intend to issue another notice
that will address other areas of the excise tax and anticipates issuing
proposed regulations after considering public comments on both notices.
Of most immediate interest to plan sponsors is the specific type of coverage (i.e., “applicable coverage”) that will be subject to the excise tax, particularly where the statute is unclear.
Employee Pretax HSA
The ACA statute provides that employer contributions to an HSA are subject to the excise tax, but did not specifically address the treatment of employee pretax HSA contributions. The notice says that the agencies “anticipate that future proposed regulations will provide that (1) employer contributions to HSAs, including salary reduction contributions to HSAs, are included in applicable coverage, and (2) employee after-tax contributions to HSAs are excluded from applicable coverage.”
Note: This anticipated treatment of employee pretax contributions to HSAs will have a significant impact on HSA programs. If implemented as the agencies anticipate, it could mean many employer plans that provide for HSA contributions will be subject to the excise tax as early as 2018, unless the employer limits the amount an employee can contribute on a pretax basis.
and Vision Plans
The ACA statutory language specifically excludes fully insured dental and vision plans from the excise tax. The treatment of self-insured dental and vision plans was not clear. The notice states that the agencies will consider exercising their “regulatory authority” to exclude self-insured plans that qualify as excepted benefits from the excise tax.
The agencies are also considering whether to exclude excepted-benefit employee assistance programs (EAPs) from the excise tax.
Onsite Medical Clinics
The notice discusses the exclusion of certain onsite medical clinics that offer only de minimis care to employees, citing a provision in the COBRA regulations, and anticipates excluding such clinics from applicable coverage. Under the COBRA regulations an onsite clinic is not considered a group health plan if:
The agencies are also asking for comment on
the treatment of clinics that provide certain services in addition to first
With the release of this initial guidance, plan sponsors can gain some insight into the direction the government is likely to take in proposed regulations and can better address potential plan design strategie
Last week, the IRS issued its “final” versions of the forms 1094-B,1094-C, 1095-B and 1095-C along with instructions for the “B” forms and instructions for the “C” forms. The good news is that the forms are pretty much the same from the drafts released in mid 2014. What has changed is that the revised instructions have filled in some gaps about reporting, some of which are highlighted below:
1. Employers with 50-99 FTEs who were exempt from compliance in 2015 must still file these forms for the 2015 tax year.
2. For employers that cover non-employees (COBRA beneficiaries or retirees being most common), they can use forms 1094-B and 1095-B instead of filing out 1095-C Part III to report for those individuals.
3. With respect to reporting for employees who work for more than one employer member of a controlled group aggregated “ALE”, the employee may receive a report from each separate employer. However, the employer for whom he or she works the most hours in a given month should report for that month.
4. Under the final instructions, a full-time employee of a self-insured employer that accepts a qualifying offer and enrolls in coverage, the employer must provide that employee a 1095-C. The previous draft indicated that it would be enough to simply provide an employee a statement about the offer rather than an actual form
5. For plans that exclude spouses covered or offered health coverage through their own employers, the definition of “offer of health coverage” now provides that an offer to a spouse subject to a reasonable, objective condition is treated as an offer of coverage for reporting purposes.
6. There are some changes with respect to what days can be used to measure the “count” for reporting purposes. Employers are allowed to use the first day of the first payroll period of each month or the last day of the first payroll period of each month, as long as the last day is in the same month as when the payroll period starts. Also, an employer can report offering coverage for a month only if the employer offers coverage for every day of that month. Mid-month eligibilities would presumably be counted as being covered on the first day of the next month. However, in the case of terminations of employment mid-month, the coverage can be treated as offered for the entire month if, but for the termination, the coverage would have continued for the full month.
Now as a refresher about what needs to be filed:
Bear in mind that there is a considerable amount of time between now and the final filing obligation so there may be additional revisions to these instructions, or at least some further clarification. But in the meantime, read the instructions and familiarize yourself with the reporting obligations as well as beginning the steps to collecting the necessary data to make completing the forms next year easier.
Beginning January 1, 2015, employers have new reporting obligations for health plan coverage, to allow the government to administer the “pay or play” penalties to be assessed against employers that do not offer compliant coverage to their full-time employees.
Even though the penalties only apply if there are 100 or more employees for 2015, employers with 50 or more full-time equivalent employees are required to report for 2015. Also, note this reporting is required even if the employer does not maintain any health plan.
Employers that provide self-funded group health coverage also have reporting obligations, to allow the government to administer the “individual mandate” which results in a tax on individuals who do not maintain health coverage.
These reporting obligations will be difficult for most employers to implement. Penalties for non-compliance are high, so employers need to begin now with developing a plan on how they will track and file the required information.
Pay or Play Reporting. Applicable large employers (ALEs) must report health coverage offered to employees for each month of 2015 in an annual information return due early in 2016. ALEs are employers with 50 or more full-time equivalent (FTE) employees. Employees who average 30 hours are counted as one, and those who average less than 30 hours are combined into an equivalent number of 30 hour employees to determine if there are 50 or more FTE employees. All employees of controlled group, or 80% commonly owned employers, are also combined to determine if the 50 FTE threshold is met.
Individual Mandate Reporting. Self-funded employers, including both ALEs and small employers that are not ALEs, must report each individual covered for each month of the calendar year. For fully-insured coverage, the insurance carrier must report individual month by month coverage. The individual mandate reporting is due early in 2016 for each month of 2015.
Which Form? ALE employers have one set of forms to report both the pay or play and the individual mandate information – Forms 1094C and 1095C. Insurers and self-insured employers that are not ALEs use Forms 1094B and 1095B to report the individual mandate information. Information about employee and individual coverage provided on these forms must also be reported by the employer to its employees as well as to COBRA and retiree participants. Forms 1095B and 1095C can be used to provide this information, or employers can provide the information in a different format.
The following chart summaries which returns are filed by employers:
Who Reports? While ALE status is determined on a controlled group basis, each ALE must file separate reports. Employers will need to provide insurance carriers, and third party administrators who process claims for self-funded coverage (if they will assist the employer with reporting), accurate data on the employer for whom each covered employee works. If an employee works for more than one ALE in a controlled group, the employer for whom the highest number of hours is worked does the reporting for that employee.
Due Date for Filing. The due date of the forms matches the due dates of Forms W-2, and employers may provide the required employee statements along with the W-2. Employee reporting is due January 31st and reporting to the IRS is due each February 28th, although the date is extended until March 31st if the forms are filed electronically. If the employer files 250 or more returns, the returns must be filed electronically. Reporting to employees can only be made electronically if the employee has specifically consented to receiving these reports electronically.
Penalties. Failure to file penalties can total $200 per individual for whom information must be reported, subject to a maximum of $3 million per year. Penalties will not be assessed for employers who make a good faith effort to file correct returns for 2015.
What Information is Required? For the pay or play reporting, each ALE must file a Form 1094C reporting the number of its full-time employees (averaging 30 hours) and total employees for each calendar month, whether the ALE is in a “aggregated” (controlled) group, a listing of the name and EIN of the top 30 other entities in the controlled group (ranked by number of full-time employees), and any special transition rules being used for pay or play penalties. ALE’s must also file a 1095C for each employee who was a full-time employee during any calendar month of the year. The 1095C includes the employee’s name, address and SSN, and month by month reporting of whether coverage was offered to the employee, spouse and dependents, the lowest premium for employee only coverage, and identification of the safe-harbor used to determine affordability. This information is used to determine pay or play penalty taxes and to verify the individuals’ eligibility for subsidies toward coverage costs on the Federal and state exchanges.
If the ALE provides self-funded coverage, the ALE must also report on the 1095C the name and SSN of each individual provided coverage for each calendar month. If an employer is not an ALE, but is self-funded, the name and SSN of each covered individual is reported on the 1095B and the 1094B is used to transmit the forms 1095B to the IRS.
A chart is available that sets out what data must be reported on each form, to help employers determine what information they need to track. Click here to access the chart.
Next Steps. Employers will need to determine how much help their insurance carrier or TPA can provide with the reporting, and then the employer’s HR, payroll and IT functions will need to work together to be sure the necessary information is being tracked and can be produced for reporting in January 2016.