Preparing for ACA and State-Based Individual Mandate Reporting
As the end of 2020 approaches, it is time to start preparing for ACA reporting, including reporting to states that are enforcing health insurance individual mandates.
2020 Reporting Forms
An applicable large employer (ALE) must provide a Form 1095-C to each full time employee to report an offer of minimum essential coverage (or no offer) for each month of the calendar year. Form 1095-C is also used to report individuals enrolled in coverage by month when the employer’s health plan is self-insured. A non-ALE with a self-insured plan must provide a Form 1095-B to report individuals enrolled in coverage.
The IRS has released drafts of the 2020 Form 1095-B and Form 1095-C. The drafts have several changes that relate specifically to individual coverage health reimbursement arrangements (ICHRA) which were first available in 2020. With an ICHRA, an employer provides a class of employees with an allocation of HRA dollars that can be used to purchase individual market coverage. On the Form 1095-B, employers offering an ICHRA must report enrollment on line 8 of the form (using code G).
For an ALE, an ICHRA meets an employer’s requirement to offer minimum essential coverage. Affordability is determined on an employee by employee basis, based on the employee’s age, the lowest cost silver plan available in the employee’s market area (either primary residence location or primary work location as determined by the employer) and the amount of the ICHRA allocation. For this reason, the 2020 Form 1095-C now includes additional fields for the employee’s age on January 1 and zip code by month. Presumably the final instructions for 2020 will clarify that these new fields will only have to completed by employers who are offering an ICHRA. In addition, seven new offer of coverage codes have been added for use by employers with an ICHRA.
Impact of COVID-19 on ACA Reporting
Employers who have reduced hours, furloughed, or temporarily laid off employees due to COVID-19 may have special considerations for their 2020 ACA reporting and may have increased exposure to ACA affordability penalties, including:
- Determination of full time status – if the employer uses the lookback measurement period to determine full-time status, employees retain their full-time status for the entire stability period, even if their hours are reduced.
- Offer of COBRA coverage – when a full time employee is offered COBRA due to a reduction in hours, the employer must report COBRA as an offer of coverage (with the applicable cost). An offer of COBRA is not reported when the COBRA qualifying event is termination of employment.
- Use of W-2 safe harbor – an employer who relies on the W-2 affordability safe harbor for employees who waive coverage may find it difficult to meet the safe harbor if wages were reduced during the year, especially when the lookback measurement method is used.
Due to these considerations, employers should begin reviewing their ACA reporting now in order to accumulate information (such as COBRA premiums) that are not generally maintained in an employer’s HRIS system and to assess possible exposure to ACA penalties.
IRS Enforcement of the Employer Mandate
The Office of the Chief Counsel of the IRS has released a memorandum which states there is no statute of limitation on assessments of employer shared responsibility payments (ESRP) because no tax return is filed to report the employer’s liability, even though the employer completed their annual reporting. Although an ALE is required to file Form 1094-C and Forms 1095-C annually, it is the position of the IRS that it is not possible determine the amount of an ESRP or even if an ESRP is due based solely on the information provided in these forms. This is because the IRS must also separately determine the number of employees who received a premium tax credit. Since there is no tax return that can be used to determine an employer’s ESRP liability, there is no statute of limitations on assessment of an ESRP. Employers should be aware that their exposure to possible employer mandate penalties is ongoing unless they have offered affordable minimum essential coverage to all full time employees.
States with Health Insurance Individual Mandates
In 2020, five states and the District of Columbia require their residents to maintain health insurance coverage.
- Massachusetts – since 2007, residents of Massachusetts have been required to have health coverage that meets specific standards (Minimum Creditable Coverage or MCC) or pay a state tax penalty. Insurers or employers that provide health coverage are required to provide a Form 1099-HC to employees in Massachusetts by January 31 of each year and file them electronically with the Department of Revenue as proof of MCC coverage.
- District of Columbia – beginning in 2019, DC residents must maintain minimum essential coverage (MEC) or pay a tax penalty. DC requires an entity that provides MEC to a resident of DC during the calendar year to electronically submit Form 1095-B and Form 1095-C to the DC Office of Tax and Revenue through MyTax.DC.gov. This includes employers sponsoring fully insured plans, insurers, and sponsors of self-insured plans. DC states that compliance with the IRS requirement to furnish Form 1095-B or Form 1095-C to individuals is sufficient.
- New Jersey – beginning in 2019, New Jersey residents must maintain MEC or pay a tax penalty. New Jersey requires an entity that provides MEC to a resident during the calendar year to electronically submit Form 1095-B (fully insured and non-ALE self-insured) or Form 1095-C (ALE self-insured) via the NJ Division of Revenue and Enterprises Services’ MFT SecureTransport service. Participant statements must be provided, but furnishing the Form 1095-B or Form 1095-C satisfies this requirement.
- California – beginning in 2020, California residents must maintain MEC throughout the year or pay a tax penalty. California will require an entity that provides MEC to a resident during the calendar year to electronically submit Form 1095-B (fully insured and non-ALE self-insured) or Form 1095-C (ALE self-insured) to the state’s Franchise Tax Board. Participant statements must be provided by January 31. More details on these filing requirements is expected later in the year.
- Rhode Island – beginning in 2020, all Rhode Islanders must maintain MEC or pay a tax penalty. While it appears that reporting to Rhode Island by insurers and employers will be required (likely via electronic filing of Forms 1095-B and 1095-C), details are not yet available.
- Vermont – beginning in 2020, Vermont also requires residents to have MEC, but lawmakers were unable to agree on a tax penalty (so there is none). There also appears to be no insurer or employer reporting obligations at the current time.