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Large Employer IRS / ACA Annual Reporting Requirements & Tools

Beginning with 2015 plans, the Affordable Care Act requires defined large employers, so called Applicable Large Employers (ALE), to collect and report data related to the health plans that they offer employees. The Affordable Care Act added Sections 6055 and 6056 to the Internal Revenue Code and requires applicable large employers to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage the employer offered.

THE AFFORDABLE CARE ACT (ACA) EMPLOYER MANDATE HAS BEGUN – ARE YOU READY?

Is your business ready for the employer mandate?

The Affordable Care Act’s (ACA) employer mandate aims to reduce the number of uninsured people in the U.S. by promoting employer-sponsored health coverage. When people talk about ACA compliance, they’re typically referring to the new government requirement that a business provide its employees with affordable health coverage. Morris & Reynolds has the professional people, guidance and tools that you need to understand the new law and meet its requirements. Our Smart Compliance service has what you need to stay current and to comply.

Is your business ready for employer reporting?

Just offering health coverage doesn’t make your business ACA compliant. Sections 6055 and 6056 of the Affordable Care Act requires that employers must also file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage they offer. To determine whether businesses are in compliance with the ACA employer mandate, the IRS uses two new tax forms, 1094-C and 1095-C.

Morris & Reynolds has the professional people, guidance and tools that you need to understand the new law and meet its requirements. Our Smart Compliance service has what you need to stay current and comply at a reasonable charge to you.

Who Needs To Comply?

The ACA considers you an Applicable Large Employer (ALE) if your company has 50+ full-time (FT) employees. Compliance with the ACA employer mandate in 2015 is based on the size of your company in 2014. In 2014, if your company had:

We have the solutions that you need. With Morris & Reynolds Insurance and our Smart Compliance tools you’ll be able to automatically:

  • Generate forms 1094-C and 1095-C pre-filled with all the information that is stored in the system for you, so you can easily file in time for the deadline.
  • Keep your reporting history up-to-date, and relax as our Smart Compliance tools tracks and stores all the required reporting data. (Payroll sync required.)
  • Ensure hourly employee eligibility with our optional Smart Compliance Variable Hour Tracking & Reporting Tool.

Morris & Reynolds Insurance has created and is making available tools to help you understand the data collection process, the new IRS forms that will be used to report this data and how this process will impact your business, as well as your employees. Our professional agents and underwriters are happy to answer your questions on these important changes and forms at any time. To help educate and inform you we are pleased to provide this outline, as well as a variety of tools as follows:

Applicable Large Employers

Applicable large employers that are subject to the employer shared responsibility provisions under section 4980H are required to report under Section 6056 (Self-Insured Employers report under both Sections 6055 and 6056). An applicable large employer is an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year. A full-time employee generally includes any employee who was employed on average at least 30 hours of service per week and any full-time equivalents (for example, 40 full-time employees employed 30 or more hours per week on average plus 20 employees employed 15 hours per week on average are equivalent to 50 full-time employees). The number of Full-time equivalent employees is determined by taking the total hours worked by part-time employees (those working less than 30 hours per week) and dividing that number of monthly hours worked by 120. The answer is your total number of Full-time equivalent employees.

The IRS will use the information provided on the information return to administer the employer shared responsibility provisions of Section 4980H. The IRS and the employees of an ALE member will use the information provided as part of the determination of whether an employee is eligible for the premium tax credit under Section 36B.

Fully Insured Health Plans (Form 6056)

Under the regulations implementing Section 6056, an applicable large employer may be a single entity or may consist of a group of related entities (such as parent and subsidiary or other affiliated entities). In either case, these reporting requirements apply to each separate entity and each separate entity is referred to as an applicable large employer member (ALE member).

To help you understand this new law, its requirements and the documents needed to comply you will find several resources in the column to the right including our:

  • Large Employer Compliance Overview
  • Employer Reporting of Health Coverage Under Code Section 6055 & 6056
  • Section 6056 Reporting Workbook for Fully Insured Plans
  • ACA Update & Reporting Requirements Webinar
  • IRS Releases Final ACA Reporting Forms For Employers & Health Insurance Issuers
  • “The Clock Is Ticking” / ACA Employer Reporting of Health Coverage Summary

Self-Insured Health Plans (Form 6055)

ALE members that sponsor self-insured group health plans also are required to report information under Section 6055 about the health coverage they provide. Those ALE members that sponsor self-insured group health plans file with the IRS and furnish to employees the information required under Sections 6055 and 6056 on a single form. The IRS and individuals will use the information provided under Section 6055 to administer or to show compliance with the individual shared responsibility provisions of Section 5000A.

Data Collection Begins In 2015

The information reporting requirements under Sections 6055 and 6056 are first effective for coverage offered (or not offered) in 2015. An ALE member must file information returns with the IRS and furnish statements to employees beginning in 2016, to report information about its offers of health coverage to its full-time employees for calendar year 2015.

IRS Notice 2013-45 provides transition relief for 2014 from the Section 6056 reporting requirements and the Section 6055 reporting requirements for health coverage providers and, thus, the Section 4980H employer shared responsibility provisions, as well. Accordingly, neither the reporting requirements, nor the employer shared responsibility provisions, apply for 2014. The transition relief applies to all ALE members including for-profit, non-profit, and government entity employers. That said, in preparation for the application of the employer shared responsibility provisions beginning in 2015, employers and other affected entities may comply voluntarily for 2014 with the information reporting provisions and are encouraged to maintain or expand coverage in 2014. Returns filed voluntarily will have no impact on the tax liability of the employer.

IRS Fees & Reports Required By the Affordable Care Act

(1) PATIENT-CENTERED OUTCOMES RESEARCH INSTITUTE (PCORI) / IRS ON FORM 720:
QUARTERLY FEDERAL EXCISE TAX RETURN

1. The Affordable Care Act of 2010 (the “Affordable Care Act”) established the Patient-Centered Outcomes Research Institute (the “PCORI”) to “assist patients, clinicians, purchasers, and policy-makers in making informed health decisions.” The Affordable Care Act also created the Patient-Centered Outcomes Research Trust Fund to financially support the PCORI. To fund the trust, Congress amended the Internal Revenue Code (“IRC”) to impose an annual fee on plan sponsors of “applicable self-insured health plans.”
2. The fee began with plans in late 2012 and based on the current version of the law will run to October of 2019.
3. The fee must be paid no later than July 31 of the year following the last day of the plan year. Form 720 was designed for quarterly payments for some excise taxes but, to be clear, the PCORI fee is paid annually.
4. Electronic filing is available, but not required. Payment will be due at the time the Form 720 is due. Deposits are not required for the PCORI fee. Issuers and plan sponsors who are required to pay the PCORI fee, but are not required to report any other liabilities on a Form 720, will be required to file a Form 720 only once a year. They will not be required to file a Form 720 for the other quarters of the year. Issuers and plan sponsors who are required to pay the PCORI fee, as well as other liabilities on a Form 720, will use their Form 720 for the 2nd quarter to report and pay the PCORI fee that is due July 31. Only one Form 720 should be filed for each quarter.
5. Here is a sample of the 720 form that was revised to take the new law into consideration. Here is a copy of the IRS’s Instructions related to the form (a form they use for many topics, not just the new healthcare law).
6. For policy and plan years ending after Sept. 30, 2014, and before Oct. 1, 2015, the applicable dollar amount is $2.08. For policy and plan years ending after Sept. 30, 2015, and before Oct. 1, 2019, the applicable dollar amount is further adjusted to reflect inflation in National Health Expenditures, as determined by the Secretary of Health and Human Services.
7. The PCORI regulations prohibit using “third-party reporting” for Form 720. Sponsors of self-insured health plans must report and pay the PCORI fee to the IRS on Form 720 : Quarterly Federal Excise Tax Return. Plan sponsors must pay the fee and it is our view that it cannot be paid by the plan or from plan assets.
8.

Determining “Average Number of Lives Covered”

The law requires that you take a consistent approach in the method in which you calculate the average number of lives covered. The key is to use the same method consistently during a given plan year (although you can use a different method from one plan year to the next). Generally, all individuals who are covered during the policy year or plan year must be counted in computing the average number of lives covered for that year. Thus, for example, an applicable self-insured health plan must count an employee and his dependent child as two separate covered lives.

Plan sponsors may choose from one of four methods to calculate the average number of lives covered under a self-insured plan:

A) Actual Count Method: You calculate the sum of the lives covered for each day of the of the plan year and divide this sum by the number of days in the plan year.

B) Snapshot Count Method: You calculate the sum of the total number of lives covered on one date in each calendar quarter of the plan year, or on an equal number of dates for each quarter, and divide the total by the number of dates on which a count was made.

C) Snapshot Factor Method: This is the same approach as the Snapshot Method noted above, except that the number of lives covered on a given day is equal to the sum of the number of participants with self-only coverage on that date, plus the product of 2.35 and the number of participants with coverage other than self-only coverage on the date.

D) Form 5500 Method: You calculate the average number of lives covered based on the number of participants reported on Form 5500 (Annual Return/Report of Employee Benefit Plan) for the applicable self-insured health plan for that plan year.

For a plan offering self-only coverage, the average number of covered lives is the sum of the total participants reported at the beginning and end of the plan year, in each case as reported on Form 5500, divided by two. For a plan offering self-only coverage and coverage other than self-only coverage, the average number of lives equals the sum of total participants reported on Form 5500 at the beginning and end of the plan year.

(2) HHS REINSURANCE PLAN FEE

Starting last year the Affordable Care Act also began imposing a reinsurance fee to cover temporary programs for the state’s individual health insurance marketplaces. This was done to offset the likely risk of waiving health questions and providing coverage for pre-existing conditions.

Last year this fee was built into your fully insured rates, but this year it will be a cost that you, as a self-funded plan sponsor, will pay. This fee on health plans totals $25 billion, which will be collected over a three-year period from 2014 through 2016. The majority of the money will be used to fund a reinsurance program, which is intended to lessen the impact of adverse selection in the individual market. The fee applies to both insured and self-funded commercial major medical plans. For an insured plan, the fee is the responsibility of the health insurer. For a self-funded plan, the fee is the employer’s responsibility.

Health insurance issuers and self-funded group health plans must pay fees to a transitional reinsurance program for the first three years of health insurance exchange operation (2014-2016). The fees will be used to help stabilize premiums for coverage in the individual market. Fully insured plan sponsors do not have to pay the fee directly.

Certain types of coverage are excluded from the reinsurance fees, including HRAs that are integrated with major medical coverage, HSAs, health FSAs and coverage that consists solely of excepted benefits under HIPAA (such as stand-alone vision and dental coverage). The reinsurance program’s fees will be based on a national contribution rate, which HHS will announce annually. The reinsurance fee is calculated by multiplying the average number of covered lives by the national contribution rate. Additional guidance is expected to be issued on this fee requirement.

Reinsurance Fee
What is it / fee duration Annual fee on insured and self-funded health plans from 2014 – 2016
Purpose Fund reinsurance program to lessen impact of adverse selection in the individual marketplace
Who Pays Insured: Insurers
Self-funded: Employers
Tax Implications Tax Deductible
Estimated Cost of Impact $63 PMPY in 2014; $44 PMPY in 2015; Prosed amount of $27 PMPY in 2016
Calculation of Fee Actual Count Method; Snap-Shot Count Method; Snap-Shot Factor Method or Form 5500 Form Method

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(3) MINIMUM ESSENTIAL COVERAGE / REPORTING OF EMPLOYEE COUNT

Under Sections 6055 and 6056, entities that provide minimum essential coverage will use Form 1094-C and Form 1095-C to report information to the IRS about each individual covered under that minimum essential coverage. These entities include health insurance issuers, self-insured plan sponsors, government-sponsored programs and other entities that provide minimum essential coverage. Related statements must also be provided to covered individuals.

The IRS will use these forms when determining whether an individual owes penalties under the ACA’s individual mandate.

Plan sponsors of self-insured coverage that are also applicable large employers will use Form 1094-C and Form 1095-C to report information about individuals who are covered under the self-insured plan.

Paper reports are due by 2/29/16 with electronic filings due by 3/31/16.

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(4) HPID (HEALTH PLAN IDENTIFICATION NUMBER) – DELAYED

  • Self-insured group health plans are “health plans” for purposes of HIPAA and therefore must obtain an HPID if they meet the definition of a CHP. In general, most employer-sponsored group health plans are CHPs; however, the insurance carrier obtains and uses the HPID for its fully insured plans.
  • For self-insured health plans, the responsibility for obtaining an HPID ultimately rests with the plan sponsor (e.g., the employer). A TPA or other entity may assist a plan sponsor with the HPID application process; however, an individual with the authority to legally bind the company must sign-off on the application in order for an HPID to be generated. We note that the application process can be challenging for employers, who may not possess some of the information requested during the application process. For example, the application requests a Payer ID number; however, HHS has advised that self-funded employers that do not have these numbers may enter “not applicable” in this field on the application and will still be able to apply for their HPID successfully.
  • On October 31, 2014, the Centers for Medicare and Medicaid Services (CMS) issued a Statement of Enforcement Discretion. In its statement, CMS announced a delay, until further notice, in enforcement of the regulations pertaining to health plan enumeration and use of the Health Plan Identifier (HPID) in HIPAA transactions in the final rule (CMS-0040-F). CMS cited a recommendation from the National Committee on Vital and Health Statistics (NCVHS), an advisory body to the Department of Health and Human Services (HHS), that HHS rectify in rulemaking that all covered entities (health plans, healthcare providers and clearinghouses, and their business associates) not use the HPID in the HIPAA transactions. This enforcement discretion will allow HHS to review the NCVHS’s recommendation and consider any appropriate next steps.

The Affordable Care Act is a highly complex set of regulations that incorporates many new legal and tax concepts into law and our nation’s tax code. Expert legal and tax advice is essential to a fully understand the law and how it impacts businesses, as well as individuals. The ACA reporting guides, associated calculators, tools and various commentary provided on this website, as well as the various publications found here are offered as a basic, general overview of the new law and some of its concepts. These items and information should not be construed as tax or legal advice. Morris & Reynolds Insurance, its employees and representatives do not provide tax or legal advice and suggest that individuals and businesses should seek professional advice based on their particular circumstances from their tax expert and legal advisor.

IRS and DOL regulations are complicated and involve sophisticated tax and legal concepts. Please keep in mind that Morris & Reynolds Insurance does not provide accounting, nor legal services. We are, however, happy to work with your legal and accounting professionals on any questions that they might have concerning your employee benefit’s coverage or compliance and suggest that you consult with them concerning all applicable regulations, requirements and laws.


Click above to read Who’s Afraid of The Big Bad Compliance Wolf? blog post.

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Click above for a PDF copy of the Employer Reporting of Health Coverage – Code Sections 6055 & 6056 document.

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Click above for a copy of the Section 6055 Workbook. For the Section 6055 Workbook Instructions, click here.

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Click above for a copy of the Section 6056 Workbook. For the Section 6056 Workbook Instructions, click here.

Click above to view the Section 6056 Reporting Workbook Instructional Video – Part I.

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Click above to view the ACA Update & Reporting Requirements webinar. For a copy of the presentation, click here.

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Click above for a PDF copy of the IRS Releases Final ACA Reporting Forms For Employers & Health Insurance Issuers.

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Click above for a PDF copy of the ACA Employer Reporting of Health Coverage one-page summary.

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