By: HUB’s EB Compliance Team

The IRS recently finalized proposed rules that made permanent and automatic the 30-day extension for furnishing ACA reporting forms to individuals, which we wrote about here. Though it did not garner as much attention as the extension, the regulations also finalized an alternative method for furnishing certain individual statements for coverage providers.

Background

As we have detailed before, the Affordable Care Act (“ACA”) requires Applicable Large Employers or ALEs (generally at least 50 full-time equivalent employees) and smaller self-funded/level-funded groups, among other coverage providers (like carriers), to file and distribute certain tax forms. ALEs generally file Forms 1094-C and 1095-C while providers of health coverage (including small self-funded/level-funded groups) typically file Forms 1094-B and 1095-B.

These forms enable IRS enforcement of ACA’s health coverage mandate provisions. Specifically, the forms are intended to tell the IRS if the employer (or coverage provider) complied with certain ACA requirements. The forms also help the IRS determine if individuals are eligible for tax credits to buy individual coverage. The Forms 1094-B and 1095-B were also used to enforce the individual mandate prior to its reduction to $0 in 2017.

Because the individual mandate penalty was reduced to $0, the Form 1095-B no longer serves a significant purpose because individuals do not need to prove they had health coverage to avoid a penalty. However, Congress has not eliminated the reporting requirement for that form.

Who is Eligible for The Alternative Manner?

The IRS announced the alternative manner as a way to make the ACA reporting process somewhat easier for certain coverage providers. Employers should not get too excited however, as the alternative manner mostly applies to Form 1095-B, which means this will not impact most employers. Instead, insurance carriers will be the greatest beneficiary of this change.

There are only two groups of employers that can utilize this alternative method. The first is small, self-funded or level-funded employers (generally, those employers with fewer than 50 full-time equivalent employees). These employers are not subject to the ACA employer mandate and therefore do not have to report on coverage offered. However, as coverage providers, they are required to report on coverage actually provided.

The second group of employers are those that are Applicable Large Employers with a self-funded health plan, but that provided Forms 1095-C to individuals who are not full-time employees, like part-time employees or covered non-employees like COBRA beneficiaries. This alternative manner only applies to those covered individuals who are not full-time employees. Full-time employees are still required to receive the Form 1095-C.

How Does the Alternative Manner Work?

To utilize the alternative manner, the eligible entity reporting on its coverage (whether a carrier or eligible employer) must take several specific steps.

  • The reporting entity must provide clear and conspicuous notice, in a location on its website that is reasonably accessible to all individuals entitled to a Form 1095-B (or Form 1095-C, if applicable), stating that they may receive a copy of their statement upon request.
  • The notice must include an email address, a physical address to which a request for a statement may be sent, and a telephone number they may use to contact the eligible reporting entity with any questions.
  • The notice must be written in plain, non-technical terms and with letters of a font size large enough, including any visual clues or graphical figures, to call to a viewer's attention that the information pertains to tax statements reporting that individuals had health coverage.
  • It must explain how individuals may request a copy of Form 1095-B (or Form 1095-C, if applicable) and includes the eligible reporting entity’s email address, mailing address, and telephone number.
  • The eligible reporting entity must retain the notice in the same location on its website through October 15 of the year following the calendar year to which the statements relate (e.g., October 15, 2023, for 2022 forms). If October 15 is a Saturday, Sunday, or legal holiday, the notice must remain through the next regular business day.
  • The statement must be furnished to the requesting individual within 30 days of the date the request is received and may be provided electronically if consent to electronic distribution is properly provided.

Employers must understand that the alternative manner only applies to the distribution of copies of Form 1095-B (and in very narrow circumstances, Form 1095-C) to individuals. Importantly, this means the underlying reporting requirements and transmittals to the IRS remain unchanged.

Practical Considerations

Given the scale of the requirements to comply with the alternative manner, the greatest beneficiaries will be the insurance carriers. As issuers of coverage, they would issue a large number of 1095-Bs each year and have the infrastructure to post the required notice as well as the potential cost savings by not having to distribute forms to all covered individuals.

Eligible employers considering the alternative method must first understand if this is applicable. For many it is not. Small employers who sponsor self-insured group health plans and report on Form 1095-B may not have the capabilities to provide proper notice to their employees. Likewise, Applicable Large Employers looking to utilize the alternative manner would only be able to use this for a portion of their covered populations, thus requiring distribution of the forms to covered full-time employees and not to other covered individuals. It may be easier to simply mail out the forms.

Conclusion

Though the great majority of employers may not be able to utilize the alternative manner themselves, they should be aware of it. In particular, employers who sponsor fully-insured group health plans should understand if their insurance carriers are using the alternative manner as they may receive questions from their plan participants.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.