The IRS has issued final regulations addressing the type of information the government will collect under health care reform. The details are essential for the government to set up an enforcement mechanism to implement the law’s employer mandate provisions.
The “final regulations” implement requirements set forth in two separate sections of the Internal Revenue Code addressing: (1) the reporting of enrollment in Minimum Essential Coverage (often called “MEC”, under IRC Section 6055) and (2) employer reporting about the health insurance coverage offer (under IRC Section 6056). Tax code sections 6055 and 6056 will work in tandem to help the agencies effectuate enforcement activity.
Although the lion’s share of public attention seems to have always centered on the employer mandate and how employers will deliver compliant, affordable coverage to avoid assessment of the mandate penalties ($2,000 “no offer” penalty and $3,000 defective coverage penalty, both figures subject to automatic indexing) -- employer reporting is also required. Specifically, the health care reform law directs that every organization providing health care coverage to employees file a return to the IRS that reports the terms and conditions of the health care coverage provided during the year. The nature of the report depends on the employer’s size and type of health care coverage provided. A companion statement must also be delivered to employees. The reports must include and certify detailed and specific information on the employer's full-time employees, including those who received the coverage and when they received it. This information will be also used to administer the premium tax credit for eligible individuals.
What is Section 6055 reporting?
Enrollment details: Tax code section 6055 requires employers, insurance issuers and governments providing individuals with any health plan coverage to convey information concerning the type and period of coverage provided. The final rules set forth the general reporting method employers will use, with options to streamline reporting if certain conditions can be satisfied. (Not surprisingly, the conditions needed to shift to simplified reporting will require that the employer agree to heightened standards under the mandate. In other words, the rules function as a “carrot” to entice employers to consider shifting away from strategies such as “skinny plans” and to press for coverage offers to broader numbers of workers.) Section 6055 was enacted to provide assistance to the IRS and individuals for collecting the requisite information under the individual mandate.
What is Section 6056 reporting?
Details about coverage offered: Section 6056 creates a new IRS reporting obligation for an applicable large employer that is intended to deliver information about the type of health coverage the employer offered to full-time employees under health care reform. (The federal health care reform law defines large employer as one with 50 or more full-time equivalent employees.)
“Smaller” large employers using the one-year delay still report. Note that under separately issued guidance, employers with fewer than 100 employees are eligible for an additional one-year delay under the employer mandate. (Please reference the HUB International Client Bulletin for details.) An employer that is eligible for this special relief is still required to report to the IRS in 2016; however, that report will simply serve to certify that the “smaller large” employer satisfies all of the eligibility conditions necessary to qualify for the delay. The IRS states that it will soon publish health care reform related forms and it is anticipated that special codes will be used to help the employer indicate it was not required to comply with the mandate in 2015.
Section 6056 also requires employers to provide coverage details to workers to help enable individuals to assess whether or not they are eligible for a federal premium tax credit to subsidize the purchase of health insurance through a health insurance “Exchange.” (Note: An individual’s access to federal subsidies for exchange coverage is blocked when an employer satisfies terms of the mandate by offering minimal essential coverage that is considered both affordable and provides minimum value.) The reporting requirement also assists the IRS in administration of the employer mandate. The government is counting on information compelled under tax code Section 6056 to accurately evaluate tax credit eligibility.
Streamlined Information Reporting (Combined form)
Since a large employer who offers self-insured coverage will have a dual reporting requirement, the final rules provide for a single, consolidated form that employers will use to report to the IRS and employees under both sections 6055 and 6056 (Form 1095-C). This combined approach is supposed to take less time by avoiding duplicative efforts.
As envisioned, the combined form uses two sections: the top half includes the information needed for section 6056 reporting, while the bottom half includes the information needed for section 6055. The rules specifically allow employers to contract with outside parties for filing reports and furnishing employee statements to comply with section 6056. The rules also note that the existence of any contractual arrangements would not transfer or shield an employer from potential liability stemming from the third party’s error or omission. (Of course, if an employer was penalized due to the third party’s error, that employer might have a cause of action to recover against the outside party stemming from a reporting problem.)
Section 6055 Minimum Essential Coverage Reporting
This section is applicable to health issuers, employers, governments and other entities that provide minimum essential coverage to individuals. The regulations refer to these entities as “persons” and we reference them the same way in the following bullets.
Persons required to report
- Self-funded: Plan sponsors for self-insured groups are responsible for the filing. The general aggregation rules for controlled groups are not applicable for this requirement, thus, each employer in a controlled group is treated as a plan sponsor and separately responsible for reporting.
- Insured plans: Insurance carriers are required to report for employers sponsoring fully insured plans as well as qualified health plans enrolled through a SHOP Exchange. Governmental employers are subject to the filing requirement but may designate that responsibility to another person.
- Exceptions: Some types of programs are specifically excepted from a reporting obligation. The “exception” comes as no surprise as it generally carries forward the same PPACA exception that has applied for other coverage. For example, on-site medical clinics, or “wellness programs” that are an element of other minimum essential coverage (such as wellness programs offering reduced premiums or cost-sharing under a group health plan) are excused. In addition, programs “supplementing” a primary plan of the same plan sponsor or that supplements government-sponsored coverage (such as Medicare) are also excused from reporting. (Of course, Medicare Secondary Payer rules generally preclude an employer’s ability to furnish Medicare Supplement coverage.)
Reporting: What details are required?
Federal law now calls for employers, insurers, and other reporting entities to report information that includes:
- For section 6055
- For section 6056
Simplified Reporting: Helpful Employer Option
Qualifying offer: Only employers providing “qualifying offers” are eligible and conditions must be satisfied. For employers providing a “qualifying offer,” an arguably more convenient reporting option is available.
- What is a qualifying offer? A qualifying offer is an offer of minimum value coverage that provides employee-only coverage at a cost to the employee of no more than 9.5 percent of the Federal Poverty Level in the 48 contiguous states (estimates for 2015 are not yet available - but based on the 2014 number would equate to approximately $1,108), combined with an offer of coverage for the employee’s family. Note: Although “skinny coverage” represents a satisfactory form of MEC, it is not as comprehensive as Minimum Value (MV) coverage. An employer solely relying on a MEC offer to discharge the mandate obligation does not satisfy the condition for “qualifying offer.”
- Full year of qualifying offer: For employees who receive qualifying offers for all 12 months of the year, employers will need to report only the names, addresses, and taxpayer identification numbers (TINs) of those employees and the fact that they received a full-year qualifying offer. Employers must also deliver a copy of that simplified statement to the worker certifying that the employee received a full-year qualifying offer.
- Less than full year: For employees who receive a qualifying offer for fewer than all 12 months of the year, employers will be able to simplify reporting to the IRS and to employees for each of those months by simply entering a code indicating that the qualifying offer was made.
- Special rule: 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 reporting method for 2015. Those employers will be able to use the simplified, streamlined reporting method for their entire workforce, including for any employees who do not receive a qualifying offer for the full year. Those employers will provide employees with standard statements relating to their possible eligibility for premium tax credits.
- Option for blanket full-time designation: The final regulations also give employers the option to avoid identifying in the report which of its employees are full-time, and instead to just include in the report an estimate of those employees who may be full-time. As a condition of this option, the employer must document that it offered affordable, minimum value coverage to at least 98% of the employees on whom it is reporting.
When does all of this go into effect?
Although these reporting rules were originally planned to go into effect with the PPACA employer mandate, reporting requirements were delayed for 2014 (along with the general employer mandate delay) under previously issued Notice 2013-45. This means that the first reporting will not generally become due until early 2016.
- Filing deadlines: The final regulations provide that health coverage reports must be filed with IRS annually, no later than February 28 (March 31 if filed electronically) of the year immediately following the calendar year to which the return relates. (In other words, the same filing schedule cycle that employers use for Form W-2.) Due to the reporting postponement under Notice 2013-45, the first required reports to be filed are for the 2015 calendar year and must be filed no later than March 1, 2016 (because February 28, 2016 is a Sunday), or March 31, 2016, when filed electronically.
- Employee statements: Also under the final regulations, employee statements must be furnished annually to full-time employees on or before January 31 of the year immediately following the calendar year to which the employee statements relate. This would mean that the first employee statements for 2015 must be delivered by February 1, 2016 (because January 31, 2016 is a Sunday).
An employer that fails to comply with these reporting requirements risks a variety of possible penalties, including assessment for failure to file an “information return” or “failure to furnish payee statements.” The general penalty amount is $100 for each statement with respect to which the failure occurs, with the total penalty amount capped at $1,500,000. In addition, other provisions allow for “reduced penalties” if corrections are made within a specified period, or further reductions may be available based on the gross earnings of the employer organization. Penalties may even be waived if the failure is due to reasonable cause, and not to willful neglect.
The bottom line, however, is that as the IRS is relying on employer reports as its central enforcement mechanism, informational accuracy will be carefully scrutinized and employers could be subject to penalties for failure to file a correct information return or failure to furnish correct payee statements.
Federal Register: Final Rules
IRS: Notice 2013-45
HUB Client Bulletin: Employer Mandate: Final Regulations Published
© 2014 Hub International All Rights Reserved
The discussion presented in this document is informational in nature and is not (and should not be construed as) a legal opinion or legal advice. We would be happy to discuss any information above with you or your attorney.