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Health Care Reform: IRS proposes regulations on reporting requirements for minimum essential coverage and employer shared responsibility

September 23, 2013

The Department of Treasury and the Internal Revenue Service (IRS) postponed enforcement of the play-or-pay penalties against applicable large employers (ALEs) pending the issuance of guidance about the employer reporting requirements for (i) minimum essential coverage, and (ii) employer shared responsibility. On September 5, 2013, Treasury and the IRS issued two sets of proposed regulations addressing each of these reporting requirements.

Both of these regulations, once finalized, will be applicable for calendar years after December 31, 2014. This means that the filing of these information returns will not be due until the first quarter (for specific deadlines, see, below) of 2016 for calendar year 2015, but the IRS is urging that filing entities ensure that they are able to capture the necessary data by voluntarily filing returns for calendar year 2014 in 2015.

Background

Though there is some overlap, the two reporting requirements focus on different Affordable Care Act (ACA) obligations. The minimum essential reporting requirements under Internal Revenue Code (IRC) §6055 are designed primarily to gather information necessary to enforce the ACA’s individual responsibility requirements (i.e., the individual mandate) – to determine whether an individual has minimum essential coverage so as to avoid the tax penalty, and to help determine whether or not they are eligible for premium tax credits through an Exchange.

IRC §6056 addresses the reporting requirements for ALEs and are necessary to (i) determine if these employers are complying with the shared responsibility requirements or are subject to the play-or-pay excise tax penalties, (ii) help identify individuals who are ineligible for premium tax credits for coverage obtained through an Exchange because they have been offered minimum value, affordable coverage through their employer, and (iii) help identify individuals who have satisfied the individual mandate by having employer-sponsored coverage.

The §6055 Minimum Essential Coverage Reporting Rule

Who Must Report?
IRC §6055 requires entities that provide minimum essential coverage to report certain information to the IRS and to covered individuals. The entities who must report are health insurers, employers who sponsor self-funded group health plans, self-funded multiemployer plans (e.g., Taft-Hartley plans), government sponsored programs such as Medicare Part A, Medicare Advantage plans, Medicaid, CHIP, TRICARE, Peace Crops coverage, coverage provided by the Department of Veterans Affairs, and for plan or policy years beginning before December 31, 2014, self-funded student health plans and state high risk pools.

To eliminate reporting overlaps and to reduce the reporting burdens, the guidance provides the following clarifications: (i) except for government-sponsored programs, where benefits are insured, the insurer has the reporting obligation and employers with insured plans and trustees of insured multiemployer plans do not also have to report, (ii) for individual coverage provided through an Exchange, the insurer does not have to report as the Exchange will report this information, but insurers will have to report for coverage provided through a SHOP Exchange, (iii) self-insured small employers will have to report the information required under IRC §6055, though not under IRC §6056, (iv) the joint boards of trustees will have to report for self-funded multiemployer (e.g., Taft-Hartley) plans, (v) each employer in a multiple employer welfare arrangement (MEWA), or in a controlled group of companies, will have to report with respect to its own employees, though one member of the group or a third party administrator may help with the filing, (vii) the executive department or agency of a governmental unit that provides coverage under a government-sponsored program must report, though they can delegate the reporting obligation to a related governmental agency, (ix) states must report on the Medicaid and CHIP programs they administer, whether or not insured, and (x) self-insured ALEs will have to report under both §§6055 and 6056.

What Must Be Reported?
Reporting entities must provide the following information to the IRS:

  • Name, months of coverage and taxpayer identification number (TIN) of each individual provided with minimum essential coverage; 
  • Name, address and TIN of the “primary insured” or “responsible individual” (e.g., employee, parent, etc.); and 
  • Any other information the IRS may request or that may be required by the applicable filing form and its instructions.

In addition to the information reported to the IRS, employer-sponsored group health plans must also provide the following information to all covered individuals:

  • Name, address and employer identification number (EIN) of the employer maintaining the plan; 
  • Whether coverage was obtained through a SHOP Exchange; and 
  • Any other information the IRS may request or that may be required by the applicable filing form and its instructions.

The following information is not required to be reported:

  • Portion of the premium paid by the employer; 
  • Specific dates of coverage (only months of coverage need be reported); and 
  • Amount of any cost sharing reductions or premium tax credits if coverage is a QHP enrolled in through an Exchange, as this information will be reported by the Exchange.

Reporting entities are to include TINs, but it is understood that obtaining these for all covered individuals (e.g. dependents) may not always be easy. Reporting entities must make reasonable efforts to collect TINs for all covered individuals, but penalties for inaccurate reporting will be waived if a good faith effort was made to obtain the TIN (e.g., an initial attempt at enrollment and two subsequent annual solicitations). If the TIN cannot be obtained, the date of birth may be used in its place. Only the last known address of the responsible individual is required.

Who Must Receive the Information?
The information must be reported to the IRS. In addition, each individual provided with minimum essential coverage whose name is listed on the report to the IRS must be provided with a statement that includes all the information provided to the IRS plus the name, address and a contact phone number for the reporting entity.

When and How Must the Information Be Reported?
The information statement must be provided to individuals by January 31 of the year following the calendar year to which the information pertains. This is consistent with the time frames for providing Form W-2s. Only one statement need be provided per household, and the statement to individuals can utilize a truncated TIN for privacy protection. The information may be provided to individuals electronically if (i) the individuals are provided with relevant information about hardware and software requirements, and (ii) they consent to receive the information electronically.

The information must be provided to the IRS by February 28 of the year following the calendar year to which the information pertains, or by March 31, if filed electronically. Under §6055, the information return will be made on a yet-to-be designed Form 1095-B.

The §6056 Employer Shared Responsibility Reporting Rule

Who Must Report?
Only ALEs (i.e., applicable large employers who are subject to the employer shared responsibility, commonly known as play-or-pay, obligations imposed under IRC §4980H) must report under IRC §6056.

  • For controlled group members, while the determination of whether the entity is an ALE is made at the aggregated group level, the reporting requirements under §6056 are imposed on each ALE member with respect to its own employees. 
  • Each employer in a MEWA has independent reporting obligations with respect to its own employees. 
  • For multiemployer plans, the board of trustees would have the reporting obligation for the employees of contributing employers, though the contributing employer would remain the responsible person under §6056 with respect to all its full-time employees and would be required to sign the §6056 return prepared by the multiemployer plan board and would be responsible for any potential penalties. In addition, these employers would be obligated to report directly for any of their employees who were not participants in the multiemployer plan, but were covered under a self-insured arrangement sponsored by that employer.

Employers may, however, contract with third parties to prepare the §6056 returns and employee statements, though they would remain the responsible entity for the §6056 reporting obligations and would be subject to penalties for inaccurate or untimely filings. Governmental units that properly designate another unit or agency of government to file the §6056 returns and employee statements on their behalf are, however, able to transfer their reporting obligations to the designated unit or agency, and that unit or agency will be responsible for any penalties.

What Must Be Reported?
The regulations set forth a general method of reporting and then mention some proposed simplified alternatives. The general method can be used by all employers for all employees. Simplified methods, if adopted, will be optional, and may only be applicable for certain employee groups. A separate return is required for each full-time employee, accompanied by a single transmittal form for all returns filed for a given calendar year, (see, Section IV, below).

The proposed regulations require each ALE or ALE member to report the following information: 

  • Name, address and EIN of the ALE or ALE member; 
  • Name and telephone number of the ALE or ALE member’s contact person; 
  • The calendar year for which the information is being reported; 
  • A certification, by calendar month, as to whether the ALE or ALE member offered its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an employer-sponsored plan; 
  • Number of full-time employees for each month of the calendar year; 
  • For each full-time employee, the months during the calendar year for which coverage was available; 
  • For each full-time employee, by calendar month, the employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value; 
  • Name, address, and TIN of each full-time employee during the calendar year and the months, if any, during which that employee was covered under the employer’s plan; and 
  • Any other information that the IRS may request, or that may be required by the applicable filing form and its instructions.

The proposed regulations do not require the following information to be reported: 

  • The length of any waiting period; 
  • The employer’s share of the total allowed costs of benefits provided under the plan; 
  • The monthly premium for the lowest-cost option in each of the enrollment categories (e.g., single plus one, family coverage) under the plan. This information needs only to be provided for self-only coverage; 
  • Months, if any, during which any of the employee’s dependents were covered under the plan, as this information will be provided by means of the §6055 reporting requirements.

Under the general method, the following information is likely to be requested using indicator codes: 

  • Information as to whether the coverage offered met minimum value requirements; 
  • Whether the employee had the opportunity to enroll his or her spouse in the coverage; 
  • The total number of employees by calendar month; 
  • Whether the employee’s effective date of coverage was affected by a waiting period; 
  • Whether the ALE or ALE member was not conducting business during any particular month; 
  • Whether the ALE member expects that it will not be an ALE member the following year; 
  • Whether the ALE is part of a controlled group of companies, and if so, the name and EIN of each employer member of the controlled group on any day of the calendar year; 
  • If an appropriately designated entity is reporting on behalf of a governmental unit, or any agency or instrumentality of a governmental unit, the name address and EIN of the appropriately designated entity; 
  • If an ALE or ALE member is a contributing employer to a multiemployer plan, whether a full-time employee is treated as eligible to participate in the plan on account of the employer’s contributing to that plan; and 
  • If the administrator of a multiemployer plan is reporting on behalf of the ALE or ALE member with respect to that employer’s full-time employees who are eligible for coverage under the plan, the name, address and EIN of the administrator.

Who Must Receive the Information?
The information must be reported to the IRS. In addition, each full-time employee (even those not enrolled for coverage) must receive a statement that includes (i) the name, address and EIN of the ALE or ALE member, and (ii) all the information provided to the IRS. This can be done by providing members a copy of the Form 1095-C that is filed with the IRS.

When and How Must the Information Be Filed?
The information statement must be provided to individuals by January 31 of the year following the calendar year to which the information pertains. This is consistent with the time frames for providing Form W-2s. Only one statement need be provided per household, and the statement to individuals can utilize a truncated TIN for privacy protection. The information may be provided to individuals electronically if (i) the individuals are provided with relevant information about hardware and software requirements, and (ii) they consent to receive the information electronically.

The information must be provided to the IRS by February 28 of the year following the calendar year to which the information pertains, or by March 31, if filing electronically. ALEs or ALE members filing more than 250 returns must file electronically. The information return under §6056 will be made on a yet-to-be designed Form 1095-C and a Form 1094-C, which will be a single transmittal form for all returns filed for the calendar year.

Combined Reporting Alternatives
In addition to the general method for providing information, described above, the IRS is considering a number of options that could simplify the filing requirements for employers required to report under §6056. If these simpler alternatives are adopted, they would be optional, but not all of these simplified alternatives are likely to be adopted under the final regulations. Among those under consideration, however, are:

  • Using codes on the form W-2 that must be provided to both the employee and the IRS, rather than having to provide a separate statement to the employee 
  • For no-cost or low-cost coverage provided on a self-funded basis, having the IRS rely solely on the information provided on the §6055 return and the Form W-2, with no need for a §6056 return 
  • Allowing employers required to report under both §6055 and §6056 to use a single return form 
  • Allowing ALEs who offer coverage to nearly all their full-time employees to not have to identify the number of full-time employees offered coverage per §6056, but such employers would only need to certify that all of its employees to whom it did not offer coverage during a calendar year were not full-time employees 
  • Allowing voluntary reporting at times during the calendar, rather than the following year for the entire preceding calendar year 
  • Not having to provide employee statements to those employees who are relatively highly paid, and thus not likely to be eligible for a premium tax credit

Penalties for Untimely or Inaccurate Filings

Penalties for late or inaccurate filings will be imposed under IRC §§6721 and/or 6722, which impose penalties for filing inaccurate return information or for failing to file correct payee statements. The penalties under these provisions are generally $100 per return, capped at $1.5 million for all such failures during a calendar year. These penalties, however, can be waived if due to reasonable cause and not to willful neglect.

Action Steps

If you have questions about any of these reporting requirements, the play-or-pay rules, any other aspect of compliance with the ACA, or any other employee benefits matter, please contact one of the Honigman attorneys listed on this Alert.