On Feb. 15, the IRS announced on its ACA Information Center for Tax Professionals webpage that it would not reject taxpayers’ 2016 income tax returns that are missing health coverage information.
This information is supposed to be included on line 61 of the Form 1040 and line 11 of the Form 1040EZ to demonstrate compliance during the year with the Affordable Care Act’s (ACA’s) mandate that individuals have health insurance that meets ACA standards, or else pay a penalty.
Two crucial points regarding the IRS announcement should be stressed:
The IRS indicated that it will accept tax returns lacking this information in light of President Donald Trump’s executive order directing agencies to minimize the ACA’s regulatory burden. While the requirement to have ACA-compliant coverage or pay a tax penalty has been in place since 2014, starting this year the IRS was to have begun automatically flagging and rejecting tax returns missing that information.
“This action by the IRS doesn’t mean it won’t enforce the individual mandate,” said Lisa Carlson, senior Employee Retirement Income Security Act (ERISA) attorney at Lockton Compliance Services in Chicago. “This action simply means the IRS won’t reject a taxpayer’s return outright if the taxpayer doesn’t answer the health coverage question. The IRS reserves the right to follow up with a taxpayer, at a future date, regarding his or her compliance with the individual mandate, if the person’s tax return doesn’t provide information about his or her health insurance coverage during 2016.”
For those individuals who previously filed without providing health insurance information or who indicated that they did not carry coverage as was required, “whether the IRS will assess penalties depends on the retroactive nature of [a possible future] repeal of the individual mandate or its penalties,” Carlson said.
While the IRS announcement does not suggest that the agency won’t be strictly enforcing the individual mandate tax penalty, “we just don’t know” what enforcement actions the agency might take, said Garrett Fenton, an attorney with Miller & Chevalier in Washington, D.C., whose practice focuses on employee benefits, tax and executive compensation.
While it’s unclear how strenuous IRS enforcement actions might be, “the individual mandate and its related tax penalties are certainly still on the books, and it would require an act of Congress to change that,” Fenton noted. If tax filers leave unchecked the box indicating that they have ACA-compliant coverage, “the IRS may come back and ask them follow-up questions, and they still may get audited and potentially owe the tax penalty.”
The ACA is still the law of the land and prudent employers will want to continue to comply with the ACA, including the play-or-pay mandate and reporting requirements, including furnishing Forms 1095-C to employees and making all required filings with the IRS, until formal guidance relieves them of those compliance obligations.
Despite the IRS announcement, employers are still required to file their ACA reporting forms and those forms will be rejected if they do not contain the requisite information. Because the President has indicated that we may not see a repeal until 2018, employers will still be required to operate their health plans in an ACA-compliant manner until notified otherwise.
In the context of the employer mandate, waiver of penalties seems unlikely because these penalties are written into law and are a significant source of revenue for the federal government.
The bottom line: Those who are responsible for issuing and filing 1094s and 1095s on behalf of their organizations should continue to comply with all relevant laws, regulations, reporting requirements and filing specifications during the repeal-and-replace process.
The IRS issued Notice 2016-70 in November 2016, giving employers subject to the ACA’s 2016 information-reporting requirements up to an additional 30 days to deliver these forms to employees. The notice affected upcoming deadlines for ACA information reporting as follows:
The Treasury Department and the IRS determined that a substantial number of employers and other insurance providers needed additional time “to gather and analyze the information [necessary to] prepare the 2016 Forms 1095-C and 1095-B to be furnished to individuals,” Notice 2016-70 stated. This extension applies for tax year 2016 only and does not require the submission of any request or other documentation to the IRS.
Although the date for filing with the IRS was not extended, employers can obtain a 30-day extension by submitting Form 8809 (Application for Extension of Time to File Information Returns) by the due date for the ACA information returns.
Note: For small businesses with fewer than 50 full-time equivalent employees that provide employees with an ACA-compliant group plan, the rules are a bit different. If fully insured, the insurance company that provides coverage is required to send enrollees a copy of Form 1095-B and to submit Forms 1995-B (along with transmittal Form 1094-B) to the IRS in order to report minimum essential coverage.
If a small company is self-insured and provides group coverage, it must also provide employees and the IRS with Form 1095-B. But small business that offer insurance are not required to send Form 1095-Cs to employees or to the IRS.
Small business that do not provide group coverage are not subject to ACA reporting.
While Congress considers options to repeal and replace the ACA, businesses should prepare to comply with the current employer mandate through 2018. Businesses should pay close attention to decisions over the next few weeks, but be prepared to stay patient because significant details on employer obligations are unlikely to take shape for some time.
In one of his first actions in office, President Donald Trump signed an Executive Order to “Minimize the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal.” In a few short paragraphs, President Trump has given a very broad directive to federal agency heads, including the Department of Health and Human Services, to take steps to grant waivers, exemptions, and delay provisions of the ACA that impose costs on states or individuals.
Although the Order does not refer to employers specifically, the intent and breadth of its sweeping statements appear to direct agencies to take the same type of actions with regards to provisions of the ACA that similarly affect employers.
The Order does not itself effect any change, but rather acts as a road map to some of the desired changes of the administration, while urging the agencies to soften enforcement of pieces of the ACA until a repeal can be accomplished. It is clear that the Order cannot undo the ACA itself as that will take a coordinated act of Congress. Trump and Congressional Republicans still have much work ahead in agreeing on the legislation that will repeal and replace the ACA, including taking into account the unsettling effect such initiatives will have on the health insurance market in general.
The language of the Order addresses the actions of agencies in the interim period before a repeal occurs, but does not grant any powers above what already exist. The Order also acknowledges that any required changes to applicable regulations will follow all administrative requirements and processes, including notice and comment periods. However, it leaves the important question of how much discretion the agencies have and in what manner (and on what timetable) will they exercise that discretion.
We will continue to closely monitor agency reaction to the Executive Order, especially as it relates to the responsibilities of employers.
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 created a three-year transitional reinsurance program that reimburses health insurers in the individual market (both inside and outside the Marketplace/Exchanges) for losses they sustain when they enroll individuals who are higher-cost claimants. Health insurers and group health plans must contribute to this program by paying fees over a three-year period. 2016 is the third and final year for which these fees will be assessed.
The submission required for this final year’s fees must be filed by November 15, 2016, using the same online process used for the two prior years (i.e., via www.pay.gov).
The fees are assessed on plans that provide major medical coverage. The fees are paid on a per-person basis for each “covered life” under the plan, including dependents. For 2016, the fees are $27 per covered life, with payments due in 2017.
The fees are determined based on the plan’s enrollment count during the first nine calendar months of the year, regardless of the plan’s actual plan year. Enrollment counts for the first nine months of 2016 must be submitted by November 15, 2016. The form that contributing entities are required to submit by this deadline must include the date(s) in 2017 that the payments will be made as one or two automatic debits from the entity’s designated bank account.
Plans that are self-insured and self-administered are not required to pay the fees for 2016. To be regarded as self-administered, self-insured plans must retain responsibility for claims processing, claims adjudication (including internal appeals) and enrollment. Exceptions permit a self-insured group health plan to use a third-party administrator (TPA) in limited circumstances, but still avoid paying the fee. Plan sponsors eligible for the self-administered exemption do not need to take any action to claim it. In other words, no filing or submission is required for 2016 fees.
The official online form that needs to be completed is called the 2016 ACA Transitional Reinsurance Program Annual Enrollment and Contributions Submission Form (the 2016 Form). It became available online on October 3, 2016. CMS has posted web-based materials to assist plan sponsors in completing the 2016 Form. Plan sponsors will have to count enrollment in the plan for the first nine months of 2016, using any permissible counting method. As was the case for 2015, if the plan sponsor is reporting for itself, there is no need to upload supporting documentation with the 2016 Form. Plan sponsors that relied upon a third-party administrator (TPA) to do the submission for 2015 and intend to do the same this year should contact their TPA immediately to make sure the TPA is prepared to handle this for 2016.
Plan sponsors that may be newly eligible for the exemption for self-insured, self-administered plans due to a change in their operations should work with legal counsel to determine if the exemption is applicable. Other plan sponsors should get ready to complete the submission process before the November 15, 2016 deadline. The transitional reinsurance fee cannot be extended by the federal government unless authorized by Congress.
The next ACA compliance hurdle employers are set to face is managing subsidy notifications and appeals. Many exchanges recently began mailing out notifications this summer and it’s important for employers to make sure they’re prepared to manage the process. Why? Well, subsidies—also referred to as Advanced Premium Tax Credits, are a trigger for employer penalties. If you fail to offer coverage to an eligible employee and the employee receives a subsidy, you may be liable for a fine.
If an employee receives a subsidy, you’ll receive a notice. This is where things can get complicated. You need to ensure that the notifications go directly to the correct person or department as soon as possible, because you (the employer) only have 90 days from the date on the notification to respond. And rounding up these notices may not be so easy. For example, your employee may not have put the right employer address on their exchange / marketplace application. Most often, employees will list the address of the location where they work, not necessarily the address where the notification should go, like your headquarters or HR department. If the employee is receiving a subsidy but put a wrong address or did not put any address for their employer, you will not even receive a notice about that employee.
Once you receive the notification, you must decide whether or not you want to appeal the subsidy. If you offered minimum essential coverage (MEC) to the employee who received a subsidy and it met both the affordability and minimum value requirements, you should consider appealing.
You may think that appealing a subsidy and potentially getting in the way of your employee receiving a tax credit could create complications. Believe it or not, you may actually be doing your employee a favor. If an employee receives a subsidy when they weren’t supposed to, they’ll likely have to repay some (or all) of the subsidy amount back when they file their taxes. Your appeal can help minimize the chance of this happening since they will learn sooner rather than later that they didn’t qualify for the subsidy. Plus, the appeal can help prevent unnecessary fines impacting your organization by showing that qualifying coverage was in fact offered.
If you have grounds to appeal, you can complete an Employer Appeal Request Form and submit it to the appropriate exchange / marketplace (Note: this particular form is intended to appeal subsidies through the Federal exchange). The form will ask for information about your organization, the employee whose subsidy you’re appealing, and why you’re appealing it. Once sent, the exchange will notify both you and the employee when the appeal was received.
Next, the exchange will review the case and make a decision. In some cases, the exchange may choose to hold a hearing. Once a decision is made, you and your employee will be notified. But it doesn’t necessarily end there. Your employee will have an opportunity to appeal the exchange’s decision with the Department of Health and Human Services (HHS). If HHS decides to hold a hearing, you may be called to testify. In this situation, HHS will review the case and make a final decision. If HHS decides that the employee isn’t eligible for the subsidy, then the employee may have to repay the subsidy amount for the last few months. On the other hand, if the HHS decides the employee is eligible for the subsidy, it will be important for you to keep your appeal on file since this can potentially result in a fine from the IRS later in the year.
Sound complicated? It certainly can be. Managing subsidies and appeals could quickly add up to a substantial time investment, and if handled improperly you could see additional impacts to your bottom line in the form of fines. Handling subsidy notifications and appeals properly up front can lead to fewer fines down the road, benefiting both you and your employees.
You did it! Your 1095 forms are ready and going out to employees. Now what?
You guessed it: Employee confusion. You’re going to get some questions. If you’re the one in charge of providing the answers, remember a great offense is the best defense. You’ll want to answer the most common questions before they’re even asked.
We’ve put together a list of some basic things
employees will want to know, along with sample answers. Tailor these Q&As as
needed for your organization. and then send them out to employees using every channel you can (mail, e-mail, employee meetings, company
website, social media, posters). Tell employees how to get more detailed
information if they need it.
1. What is this form I’m receiving?
A 1095 form is a little bit like a W-2 form.
Your employer (and/or insurer) sends one copy to the Internal Revenue Service (IRS)
and one copy to you. A W-2 form reports your annual earnings. A 1095 form
reports your health care coverage throughout the year.
2. Who is sending it to me, when, and how?
Your employer and/or health insurance company should
send one to you either by mail or in person. They may send the form to you
electronically if you gave them permission to do so. You should receive it by
March 31, 2016. (Starting in 2017, you should receive it each year by January
31, just like your W-2.)
3. Why are you sending it to me?
The 1095 forms will show that you and your
family members either did or did not have health coverage with our organization during each month of
the past year. Because of the Affordable Care Act, every person must obtain
health insurance or pay a penalty to the IRS.
4. What am I supposed to do with this form?
Keep it for your tax records. You don’t actually
need this form in order to file your taxes, but when you do file, you’ll have to tell the IRS whether or not
you had health insurance for each month of 2015. The Form 1095-B or 1095-C
shows if you had health insurance through your employer. Since you don’t
actually need this form to file your taxes, you don’t have to wait to receive
it if you already know what months you did or didn’t have health insurance in
2015. When you do get the form, keep it with your other 2015 tax information in
case you should need it in the future to help prove you had health insurance.
5. What if I get more than one 1095 form?
Someone who had health insurance through more
than one employer during the year may receive a 1095-B or 1095-C from each
employer. Some employees may receive a Form 1095-A and/or 1095-B reporting
specific health coverage details. Just keep these—you do not need to send them
in with your 2015 taxes.
6. What if I did not get a Form 1095-B or a 1095-C?
If you believe you should have received one but
did not, contact the Benefits Department by phone or e-mail at this number or
address.
7. I have more questions—who do I contact?
Please contact _____ at ____. You can also go to
our (company) website and find more detailed questions and answers. An IRS website called
Questions and Answers about Health Care Information Forms for
Individuals (Forms 1095-A, 1095-B, and 1095-C)
covers most of what you need to know.
Congress and the IRS were busy changing laws governing employee benefit plans and issuing new guidance under the ACA in late 2015. Some of the results of that year-end governmental activity include the following:
The PATH Act, enacted by Congress and signed into law on December 18, 2015, made some the following changes to federal statutory laws governing employee benefit plans:
On December 16, 2015, the IRS issued Notice 2015-87, providing guidance on employee accident and health plans and employer shared-responsibility obligations under the ACA. Guidance provided under Notice 2015-87 applies to plan years that begin after the Notice’s publication date (December 16th), but employers may rely upon the guidance provided by the Notice for periods prior to that date.
Notice 2015-87 covers a wide-range of topics from employer reporting obligations under the ACA to the application of Health Savings Account rules to rules for identifying individuals who are eligible for benefits under plans administered by the Department of Veterans Affairs. Following are some of the highlights from Notice 2015-87, with a focus on provisions that are most likely to impact non-governmental employers.
In the recently released Notice 2016-4, the IRS has extended the due dates for certain 2015 Affordable Care Act information reporting requirements.
Specifically, the Notice extends:
In the Notice, the IRS also grants special relief to certain employees and related individuals who receive their Form 1095-C or Form 1095-B, as applicable, after they have filed their returns:
Thus, generally, employers should not be concerned that furnishing these Forms on a delayed basis in accordance with the Notice will force employees to file amended 2015 income tax returns.
Finally, the extensions do not require the submission of any request or other documentation to the IRS and have no effect on information reporting provisions for other years.
Many employers offer affordable health coverage that meets or exceeds the minimum value requirements of the Affordable Care Act (ACA). However, if one or more of their full-time employees claims the coverage offered was not affordable, minimum value health coverage, the employee could (erroneously) get subsidized coverage on the public health exchange. This would cause problems for applicable large employers (ALEs), who potentially face employer shared responsibility penalties, and for employees, which may have to repay erroneous subsidies.
If an employee does receive subsidized coverage on the public exchange, most employers would want to know about it as soon as possible and appeal the subsidy decision if they believed they were offering affordable, minimum value coverage. There are two ways employers might be notified: (1) by the federally facilitated or state-based exchange or (2) by the Internal Revenue Service (IRS).
Employer notices from exchanges
The notices from the exchanges are intended to
be an early-warning system to employers. Ideally, the exchange would notify
employers when an employee receives an advance premium tax credit (APTC) subsidizing
coverage. The notice would occur shortly after the employee started receiving
subsidized coverage, and employers would have a chance to rectify the situation
before the tax year ends.
In a set of Frequently Asked Questions issued September 18, 2015, the Center for Consumer Information and Insurance Oversight (CCIIO) stated the federal exchanges will not notify employers about 2015 APTCs and will instead begin notifying some employers in 2016 about employees’ 2016 APTCs. The federal exchange employer notification program will not be fully implemented until sometime after 2016.
In 2016, the federal exchanges will only send APTC notices to some employers and will use the employer address given to the exchange by the employee at the time of application for insurance on the exchange. CCIIO realizes some employer notices will probably not reach their intended recipients. Going forward, the public exchanges will consider alternative ways of contacting employers.
Employers that do receive the notice have 90 days after receipt to send an appeal to the health insurance exchange.
Employers that do not receive early notice from the exchanges will not be able to address potential errors until after the tax year is over, when the IRS gets involved.
Employer notices from IRS
The IRS, which is responsible for assessing and
collecting shared responsibility payments from employers, will start notifying
employers in 2016 if they are potentially subject to shared responsibility
penalties for 2015. Likewise, the IRS will notify employers in 2017 of
potential penalties for 2016, after their employees’ individual tax returns
have been processed. Employers will have an opportunity to respond to the IRS
before the IRS actually assesses any ACA shared responsibility penalties.
Regarding assessment and collection of the employer shared responsibility payment, the IRS states on its website:
An employer will not be contacted by the IRS regarding an employer shared responsibility payment until after their employees’ individual income tax returns are due for that year—which would show any claims for the premium tax credit.
If, after the employer has had an opportunity to respond to the initial IRS contact, the IRS determines that an employer is liable for a payment, the IRS will send a notice and demand for payment to the employer. That notice will instruct the employer how to make the payment.
Bottom line
For 2015, and quite possibly for 2016 and future years, the
soonest an employer will hear it has an employee who received a subsidy on the
federal exchange will be when the IRS notifies the employer that the employer
is potentially liable for a shared responsibility payment for the prior year.
The employer will have an opportunity to respond to the IRS before any
assessment or notice and demand for payment is made. The “early-warning system”
of public exchanges notifying employers of employees’ APTCs in the year in
which they receive them is not yet fully operational.
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
