Employer Reporting Errors

Issue Date: June 2016

Introduction

Now that the deadline under Sections 6055 and 6056 for issuing statements to employees/covered individuals has passed, employers may begin to identify errors in the statements issued. And once statements are filed with the IRS, the IRS may identify errors or information that does not match its records. In both cases, employers must take steps to rectify the errors or address inconsistencies (or demonstrate reasonable cause) to avoid potential penalties under Code §§6721 and 6722.

Background

For the first time in 2016, all applicable large employers (generally those with 50 or more full-time equivalents) are required to provide a Form 1095-C to any employees who were full-time for at least one month during 2015. And all employers, regardless of size, offering coverage under a self-funded plan during 2015 must provide either a Form 1095-B or a Form 1095-C to any individuals covered under the self-funded plan.

For 2016 only, the IRS extended the reporting deadlines. Reporting using Forms 1094 and 1095 is due to the IRS by May 31 (or June 30 if filing electronically), and a copy of the applicable Form 1095 must have been provided to full-time employees and covered individuals by March 31. Generally, the reporting timeframes will be identical to those required for Form W-2s.

Employers subject to employer reporting requirements who file the required Forms 1095 with errors may face penalties of up to $250 for each return, up to a maximum of $3,000,000 during a calendar year. Penalty amounts are reduced for those forms that are submitted and/or corrected within the first 30 days following the deadline.

For the first year of employer reporting, the IRS has indicated that it will not impose penalties for incorrect or incomplete filings on employers who can show a good faith effort to comply with the information-reporting requirements on a timely basis. However, no relief is provided if employers do not make a good faith effort to comply. For this reason, it is important that employers review the requirements for correcting any errors identified in order to demonstrate such a good faith effort.

Addressing Errors

Errors discovered by the Employer

Identified errors must be corrected as soon as possible after they are discovered. Penalties may apply if an employer fails to correct information returns or furnish corrected recipient statements. Such errors may be discovered by the employer or by form recipients (i.e., full-time employees or covered individuals) who report such errors to the employer.

Prior to filing with the IRS

The employer must issue a fully corrected 1095-C or 1095-B to the employee and write “CORRECTED” on the new form (rather than marking the CORRECTED checkbox).

After filing on paper with the IRS

  • 1094-C (Authoritative Transmittal only): The employer must file a standalone, fully completed Form 1094-C that includes the correct information and enter an “X” in the CORRECTED checkbox.
  • 1095-C and 1095-B: The employer must issue a fully corrected 1095 to the IRS and enter an “X” in the CORRECTED checkbox. The employer should also file a Form 1094 transmittal with the corrected 1095-C; however, the employer should not mark the “CORRECTED” checkbox on the Form 1094, and the Form 1094 should not be marked as an authoritative transmittal. The employer must furnish the employee or covered individual a copy of the corrected Form 1095.

After filing electronically with the IRS

Technical instructions for correcting errors in electronic filings can be found in Section 7 of Pub. 5165 (https://www.irs.gov/PUP/for_taxpros/software_developers/information_returns/Draft_Pub_5165_04_2015.pdf), but generally the corrections must also be handled electronically.

Errors discovered by the IRS

Transmission or submission rejection

If the entire filing is rejected by the IRS, appropriate corrections must be made and the entire file (Form 1094-C and all Form 1095-Cs) must be resubmitted. NOTE: When the filing has been submitted electronically, such rejection is generally due to a failure to format the content in accordance with the electronic filing process requirements. Specific information on the requirements may be found here – https://www.irs.gov/for-tax-pros/software-developers/information-returns/affordable-care-act-information-return-air-program.

Transmission or submission accepted, but with errors

In general, if the filing is accepted, but with errors, the employer is expected to make corrections. One of the most common errors that employers are running into is having incorrect or missing TINs (usually the Social Security Number or SSN). The instructions for Forms 1094-B/1095-B and 1094-C/1095-C indicate that employers are not required to issue corrected forms when a covered individual’s TIN is missing or incorrect if the employer has made a good faith effort to obtain the information in accordance with the standards for reasonable cause.

 To establish a good faith effort or reasonable cause, employers who already have an employee’s TIN by virtue of the employment relationship (e.g., from a W-4 submitted at the time of hire) should compare the information on Form 1095 with the information included on the W-2s to verify accuracy. For employers reporting on those covered under a self-funded plan, which may include non-employees such as dependents, the employer should take the following steps to demonstrate a good faith effort to solicit the covered individual’s TIN:

  1. Make an initial solicitation at the individual’s first enrollment or, if the individual is already enrolled on September 17, 2015, the next open enrollment season;
  2. If the first solicitation is unsuccessful, make a second solicitation at a reasonable time thereafter; and
  3. If the second solicitation is unsuccessful, make a third solicitation by December 31 of the year following the initial solicitation.

If an employer is still not successful after taking the steps outlined above, it may use a date of birth in lieu of a TIN for non-employees on the reporting forms.

If after going through this process the employer finds that the information received matches the information previously reported on the 1095 (or if no information was received, in which case the employer is permitted to use the date of birth and should verify that this information matches), the employer should document this review; but it doesn’t appear further action is necessary unless further notice is provided by the IRS (see more below). But if the employer reviews its W-2s or the information received from the covered individual in response to a solicitation and does discover errors on the 1095s, then the reporting instructions are clear: These errors should be corrected “as soon as possible” in order to avoid potential penalties.

 If the IRS is unable to reconcile the TIN/SSN information on Form 1095 with the information in its records, it may issue a Notice 972CG (“Notice of Proposed Civil Penalty”). If the employer receives this notice, it should compare the information on the notice with the information in its records and respond within 45 calendar days. If additional time is needed, an employer may submit a written request to the address listed on the notice before the end of the 45-day period. In the employer’s response, the employer will have the opportunity to establish reasonable cause as described herein.

 

Summary

Although the IRS has promised a bit more leniency and relief overall for this first year of employer reporting, there is no guarantee of penalty relief for a failure to correct errors that are identified by the employer or by the IRS. Employers should carefully review the steps outlined above to ensure that they are able to demonstrate a “good faith effort” toward accurate reporting.

Informal IRS instructions in regard to handling corrections may be found:

More detailed information in regard to missing or incorrect TINs may be found in Pub. 1586 (https://www.irs.gov/pub/irs-pdf/p1586.pdf) and in IRS Notice 2015-68 (https://www.irs.gov/pub/irs-drop/n-15-68.pdf).

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

Employer Exchange Subsidy Notices – Appeal or Not?

Issue Date: June 2016

Introduction

Employers are starting to receive notices from public Exchanges indicating that one or more employees are currently receiving a subsidy when purchasing individual health insurance coverage through a public Exchange, which could potentially trigger employer penalties under §4980H. If an employer receives such a notice for one of its employees, the employer has a right, but is not required, to appeal when they feel an employee should not be receiving a subsidy because the employer offers minimum value, affordable coverage.

Background

The Affordable Care Act (ACA) requires all public Exchanges (Marketplaces) to notify employers when an employee is receiving a subsidy (tax credits and cost-sharing reductions) for individual health insurance purchased through a public Exchange and provide an opportunity for employers to appeal. Final rules published in August 2013 set forth the requirements for an employer to appeal the finding that it is not offering coverage meeting §4980H requirements. The particulars of the process, however, are managed by each Exchange separately. So long as the requirements in the final rules are met, each state Exchange is allowed to set up its own process and procedures. Information about how to file an appeal is usually included in the notice, but it may be necessary to check with the applicable Exchange to find out exactly how to handle the appeals process.

Some states began sending these notices in 2015, but HHS announced that all federally facilitated Exchanges will begin sending notices in 2016.

Appeal Form and Process

The form being used by federally facilitated Exchanges as well as by 8 other states may be found here (approximately half of the states are currently using this form and process). The forms and processes for all other states may be found by visiting the state’s Exchange site. The process generally involves filing a paper appeal, providing documentation, and in some cases participating in a hearing.

Should Employers Appeal? Maybe…

Small Employers (less than 50 FTEs)
Small employers have no penalty exposure under §4980H. The only reason such an employer may want to appeal would be to prevent an employee from incorrectly receiving a subsidy through a public Exchange that may have to be paid back at the end of the year via personal tax return (employee relations). However, perhaps it would be easier simply to have a conversation directly with the employee rather than working through the appeal process.

Applicable Large Employers (50 or more FTEs)
Just because the employer receives a notice it does not mean the employer will actually owe a penalty payment under §4980H. Such penalties/payments are assessed by the IRS after reconciliation of the employer reporting. And if according to such reporting the IRS sends a payment notice, the employer will at that time have a chance to appeal with the IRS.

For part-time employees, the employer is not under any obligation to offer any type of coverage under §4980H, so going through the appeal process probably isn’t necessary. As mentioned above for small employers, the only reason an employer may want to appeal a notice provided for a part-time employee would be to prevent an employee from incorrectly receiving a subsidy through a public Exchange that may have to be paid back at the end of the year via personal tax return (employee relations).

 For full-time employees,

  • If the employee was not offered minimum value, affordable coverage, there is nothing to appeal; rather, it serves as an indication that the employer will likely owe a penalty under §4980H for at least some months of the year.
  • If the employee was offered minimum value, affordable coverage, the employer really has two options:
    1. Appeal as outlined in the notice and provide proof that the coverage offered provides minimum value and is affordable; or
    2. Reconcile this with the IRS early the following year when the employer reporting is submitted via Forms 1094-C and 1095-C.

Bottom line, the employer does not have to appeal to avoid a penalty under §4980H. Rather, penalties will not apply until after the employer reporting (via Forms 1094-C and 1095-C) is reconciled. There is some speculation that perhaps it is better to appeal with the Exchange rather than waiting to appeal later with the IRS because the appeal process with the Exchange may be more streamlined and provide for a longer appeal window, especially since the IRS has yet to release any specific guidance as to its appeal process.

Summary

This is a fairly new process, so the best approach for employers is unclear at this point. It may make sense to clear things up sooner rather than later by filing an appeal to avoid hassling with the IRS, and also to prevent the individual from receiving a subsidy for which they are actually ineligible. The appeals process doesn’t appear to be very difficult and may only need to be done for a handful of employees. But it’s possible that it could all be cleared up more quickly by simply communicating to the employee that they may be receiving the subsidy in error. So is it worthwhile to appeal, or potentially even pay a vendor to handle it on the employer’s behalf?  Maybe…or maybe not…. We will know more after this first year of employer reporting and have a better understanding of the reconciliation process with the IRS. But regardless of whether an employer decides to appeal through a public Exchange prior to reporting to the IRS via Forms 1094-C and 1095-C, ultimately any penalties that may apply will be reconciled with the IRS.

 

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

EEOC Final Rules on Wellness Programs

May 2016

Introduction

The Equal Employment Opportunity Commission (EEOC) has released two separate sets of final regulations relating to wellness program compliance under the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA). Despite a few recent court rulings against the EEOC’s voluntary requirements for wellness programs, the final rules generally clarify and confirm what was previously set forth in the proposed rules issued last year while expressing EEOC’s reasons for disagreeing with the court decisions. The EEOC made some significant changes as well, extending the incentive limitations and notice requirements to all wellness programs that fall under ADA or GINA, regardless of whether they are tied to a group health plan, in addition to adjusting the calculations for the 30% maximum incentive limitations.

Background

The ADA restricts when an employer may make disability-related inquiries or require medical examinations, and the Act requires a reasonable accommodation for those with a disability. Wellness programs often include both disability-related questions and medical examinations or testing (e.g. health risk assessment [HRA] and biometric screening), but are allowed under the ADA so long as the program is considered “voluntary.” In addition, reasonable accommodations may need to be provided for those who are unable to participate or satisfy certain criteria due to a disability.

GINA prohibits employers from conditioning eligibility or financial inducements on the provision of an employee’s genetic information. “Genetic information” includes information about the manifestation of a disease or disorder of a family member, including a spouse. However, the rules allow a narrow exception in which incentives may be offered to a spouse in conjunction with a wellness program that requires such information so long as certain requirements are met. GINA rules do not allow employers to collect similar information from an employee’s children.

In 2014, the EEOC brought three separate lawsuits against employers alleging that their wellness programs were not “voluntary.” In 2015, the EEOC released proposed rules in regard to ADA and GINA.

Effective Date

Final rules regarding the ADA, and the incentive limitations are effective for the first plan year beginning on or after January 1, 2017. All other provisions are considered clarifications of existing obligations that already apply.

Final rules regarding GINA are effective for the first plan year beginning on or after January 1, 2017.

General Requirements

Wellness programs must generally meet the following requirements to comply with ADA and GINA:

  • Must be reasonably designed to promote health or prevent disease. Information collected must either provide results or advice to improve the health of participants, or be used to design a program that would address some of the identified conditions. The program may not require an overly burdensome amount of time, require unreasonably intrusive procedures, or place significant costs on participants. And the program may not exist simply to shift costs to targeted participants or to provide information to predict future healthcare plan costs.
  • Must be voluntary. An employee’s failure to participate in the wellness program may not result in denial of health coverage for that employee. The final rules clarified that a tiered health plan structure (also known as a “gateway plan”) under which the employee is denied access to some of the plans for a failure to participate in the wellness program is not allowed. In addition, the employer may not take any other adverse action, or retaliate, interfere with, coerce, intimidate, or threaten those who do not participate or fail to achieve certain health outcomes.
  • Incentives must be limited to 30% of self-only coverage. The maximum incentive that an employer may offer for an employee’s participation in a wellness program that includes disability-related inquiries or medical examinations is 30% of the total cost of self-only coverage (including both employer and employee contributions). The same cap applies for a spouse who provides information about the manifestation of a disease or disorder.  So, for example, if the employer offers self-only coverage for a total cost of $6,000, and also offers a wellness program to the employee and spouse if they participate in the plan, the employer may not offer more than $1,800 to the employee and $1,800 to the spouse (up to $3,600 total) as an incentive for participating.

The incentive limits apply regardless of whether the wellness program is participatory or health contingent (differing from HIPAA, which applies incentive maximums only to health-contingent programs). In addition, the 30% limit applies to all wellness programs, regardless of whether they are offered in conjunction with an employer-sponsored group health plan, which is different from what was provided in the proposed rules.  And the final rules provided guidance for calculating the incentive, which differs depending upon whether the incentive is tied to the group health plan(s):

  • Wellness program available only to those enrolled in the group health plan – 30% of the total cost of self-only coverage under the plan in which the individual is enrolled.
  • Single group health plan offered, but wellness program available regardless of whether individual enrolls – 30% of the total cost of self-only coverage under that plan.
  • Multiple group health plans offered, but wellness program available regardless of whether individual enrolls in any of the plans – 30% of the total cost of the lowest cost self-only major medical coverage.
  • Employer does not offer a group health plan – 30% of the cost of the second lowest cost Silver Plan available through a public Exchange established in the location that the employer identifies as its principal place of business as a benchmark for setting the incentive limit (30% of the cost of self-only coverage if purchased by a 40-year-old non-smoker).

EEOC guidance confirms that a tobacco-related wellness program that merely asks whether an individual uses tobacco does not fall under the ADA (and therefore the maximum 50% incentive under HIPAA applies); but if the program involves any medical testing to verify the presence of nicotine or tobacco, the ADA 30% incentive limit applies.

The guidance also clarified that the term “incentives” means “any financial or other incentive,” and that there is no exclusion for de minimis incentives.

  • Notice must be provided to participants. Participants must be provided a notice clearly explaining what medical information will be collected, how it will be used, who will have access to it, and how it will be kept confidential. Within the next 30 days, a model notice will be available on the EEOC website. In addition, GINA requires that consent be obtained from the spouse for collection of health information after disclosing what will be collected, how it will be used, and how the information will be protected.
  • Confidentiality of medical information collected must be maintained. Information collected by a wellness program may generally be provided only in aggregate form that is unlikely to disclose the identity of specific individuals except as necessary to administer the plan. Information must be collected on separate forms, maintained in separate files, and treated as a confidential medical record. The final rules set forth some best practices for maintaining confidentiality, such as adopting policies, communicating such policies, training employees, using encryption, and offering breach notification.
  • Other Requirements – Participants may not be required to agree to the sale, exchange, sharing, transfer, or other disclosure of medical information (except to the extent permitted by this part to carry out specific activities related to the wellness program), or to waive confidentiality protections available under the ADA or GINA as a condition for participating in a wellness program or receiving an incentive.
  • Reasonable accommodations/alternatives must be available. Under HIPAA, wellness programs are required to provide a reasonable alternative standard for health-contingent programs (i.e. activity-based or outcome-based); the requirement does not apply for programs that are participatory. However, under the ADA, regardless of whether the program may be considered participatory or health-contingent under HIPAA, a reasonable accommodation is required if a disability or medical condition prevents an employee from participating or earning an incentive. In addition, a spouse who is unable to participate or earn an incentive due to a disability or medical condition must have the requirement waived or be provided with a reasonable alternative standard to avoid violating GINA.

Summary

For wellness programs that involve disability-related questions or medical testing (subject to the ADA) or ask about the manifestation of a disease or disorder in a spouse (subject to GINA), there is still some question as to whether employers must follow the EEOC guidelines or whether there is potentially a safe harbor available, as found by a few district courts. However, the conservative approach for now is for employers to design wellness programs that comply with these final rules and the HIPAA regulations (as well as any other nondiscrimination rules). Specifically in regard to incentive limitations, employers may want to limit all incentives, whether tied to a group health plan or not, to 30% of self-only coverage unless the incentive is tobacco-related and no medical testing is involved. It would also be beneficial for employers to review current notices and/or adopt the new model notice to be provided to all wellness program participants.

The EEOC press release, links to FAQs, and the final rules themselves may be found here.

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

Form 1095 – Employee Communications

 Issue Date: January 2016

Many employers want to provide some type of communication along with, or before, the distribution of Form 1095s to relevant employees. Although any employee communication must be tailored to meet the employer’s specific circumstances, some general concepts are addressed here that can be adjusted as appropriate to help employees understand why Form 1095s are being provided, what type of information they provide, and how they are to be used.

Background

Reporting of plan and coverage information using Forms 1094 and 1095 is required to provide the IRS with the information necessary to administer and regulate the following:

  • Individual Mandate – Individuals are required to be enrolled in minimum essential coverage (a “MEC” plan) for all months during the year to avoid potential penalties under the individual mandate unless they meet a specified exemption.
  • Employer Mandate – Applicable large employers (ALEs), those with 50 or more full-time equivalents (FTEs), are required to offer full-time employees and their dependent children minimum value, affordable coverage to avoid potential penalties under Section 4980H (aka the “employer mandate”).
  • Individual eligibility for a tax credit/subsidy through a public Exchange or Marketplace – Individuals who choose to enroll through a public Exchange or Marketplace may qualify for a tax credit/subsidy to help pay for such coverage if the individual is not enrolled in a MEC plan or is not eligible for employer-sponsored affordable, minimum value coverage and meets certain household income requirements.

All providers of an MEC plan (e.g. insurance carrier or employer sponsoring a self-funded plan) are required to report on any individuals covered under such plan.

In addition, all ALEs are required to report offer of coverage information for any employees who were full-time for any month during the year.

Form 1094 and all associated Form 1095s must be reported to the IRS, and a copy of Form 1095 (or an alternative statement) must be provided to all full-time employees and any covered individuals.

Important Information to Address in Employee Communications

  • Affordable Care Act (ACA) Requirements
    • Individuals are required to be enrolled in minimum essential coverage (an “MEC” plan) for all months during the year to avoid potential penalties under the individual mandate unless they meet a specified exemption. Individuals will need to indicate whether or not they were enrolled in MEC for all 12 months when filing their personal tax returns.
    • Individuals who are enrolled in individual coverage through a public Exchange or Marketplace may not qualify for a tax credit/subsidy if they are enrolled in an MEC plan or are eligible for affordable, minimum value employer-sponsored coverage. For individuals who were provided with such a tax credit/subsidy, but were ineligible for any part of the year, any applicable reconciliation will be handled on the personal tax return. 
  • Form Descriptions
    • For small employers (less than 50 FTEs) offering a fully-insured MEC plan:
      • Anyone actually enrolled in the employer’s medical plan will receive a Form 1095-B from the insurance carrier indicating any months of coverage for the employee and any covered dependents.
    • For small employers (less than 50 FTEs) offering a self-funded MEC plan:
      • Anyone actually enrolled in the employer’s medical plan will receive a Form 1095-B from the employer (or third-party vendor hired by the employer to provide the forms) indicating any months of coverage for the employee and any covered dependents.
    • For ALEs (50 or more FTEs) offering a fully-insured MEC plan:
      • All full-time employees, whether they enroll in the plan or not, will receive a Form 1095-C from the employer (or third-party vendor hired by the employer to provide the forms) indicating whether or not the employee was offered a plan that met both minimum value and affordability requirements.
      • In addition, anyone actually enrolled in the employer’s medical plan will receive a Form 1095-B from the insurance carrier indicating any months of coverage for the employee and any covered dependents.Note – employees who are both full-time and enrolled in the employer’s medical plan will receive both Form 1095-B from the insurance company and Form 1095-C from the employer.
    • For ALEs (50 or more FTEs) offering a self-funded MEC plan:
      • All full-time employees, as well as anyone actually enrolled in the employer’s medical plan, will receive a Form 1095-C from the employer (or third-party vendor hired by the employer to provide the forms) indicating (a) whether or not the employee was offered a plan that met both minimum value and affordability requirements; and (b) any months of coverage for the employee and any covered dependents.
  • Using 2015 Information When Filing Personal Taxes
    Individuals will use Form 1095-B and/or C as documentation that they were enrolled in minimum essential coverage (MEC) to comply with the individual mandate and whether or not the individual was eligible for a tax subsidy if enrolled through a public Exchange.

    • Information regarding coverage and subsidy eligibility is needed to complete an individual’s personal tax return, but the Form 1095 does not need to be submitted with the personal tax return. Copies of 1095s will be provided to the IRS by the employer (or third-party vendor) or insurance carrier as applicable.
    • Individuals should keep copies of 1095s on file to verify offer and coverage information in case an audit is conducted in the future.

 Also note that due to the extension of the reporting deadlines for 2016, employees may not receive a Form 1095 prior to filing their personal tax returns. Since Form 1095 is not actually required for an individual to file their personal tax return, this shouldn’t delay the filing of personal tax returns.

If Form 1095 is not available at the time the individual is preparing the personal tax return, the individual may request the information from the insurance carrier or employer. The IRS indicated in Notice 2016-4 that for the 2015 tax year, individuals who do not receive a Form 1095 prior to filing their tax returns may rely on other sources of information (e.g. from the employer or insurance carrier) for these purposes and will not be required to file an amended return if they subsequently receive a Form 1095 containing different information.

 Summary

Employers may be able to avoid some of the confusion and proactively answer employee questions by providing some type of employee communication in regard to the Form 1095s that will be provided to individuals for the first time early in 2016. The information provided here is meant to provide some general information that may be adjusted to match the employer’s situation.

More detailed information in regard to employer reporting requirements can be found in our employer reporting guide found here.

Specific information about 2016 extended deadlines may be found here.

 

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Issue Brief- Affordability Considerations

Affordability Considerations

Issue Date: June 2015

For purposes of individual eligibility for tax subsidies through a public exchange, and for compliance with the employer shared responsibility rules under Section 4980H, it is important to understand whether or not coverage offered under an employer-sponsored group health plan is “affordable.” When setting plan contribution rates employers must consider IRS employer affordability safe harbors, the various elements that play into the determination of the employee contribution, and the penalties associated with failing to offer affordable coverage.  Continue reading “• Issue Brief- Affordability Considerations”

• Issue Brief- Small Group Market – Changing Definition

Small Group Market – Changing Definition

Regan Blomme J.D. MBA,
Senior Consultant
Benefit Comply, LLC

Issue Date: July 20

View as word doc     View as PDF

Beginning in 2016, the definition of “small employer” for insurance rating and underwriting purposes changes. In general, employers with 51–100 full-time equivalents (FTEs) may now fall into the small employer category, and such groups will be subject to community rating and required to offer essential health benefits for the first time. However, transition relief issued by the Department of Health & Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) allows states and insurers to choose to renew current policies through October 1, 2016. In other words, depending upon which state the insurance policy is being issued out of, employers with 51–100 FTEs who would otherwise be required to purchase a small group policy beginning in 2016 may have the option to renew their current policies through October 1, 2016.

Background

Under the Affordable Care Act (ACA), the definition of a small employer is “an employer who employed an average of at least 1 but not more than 100 employees on business days during the preceding calendar year and who employs at least 1 employees [sic] on the first day of the plan year.”

In November 2013, CMS announced a one-year transition policy allowing insurers in the small group market to renew policies that would otherwise have been canceled due to noncompliance under health care reform beginning in 2014. Then in March 2014, HHS announced a two-year extension of this policy. 

Although the transition relief primarily affects the small group market by allowing the renewal of non-compliant plans, the transition relief also applies to employers who currently purchase insurance in the large group market, but who as of January 1, 2016 will be redefined as a small employer required to purchase insurance in the small group market. 

In states that choose to adopt the transition relief, insurers have the option of renewing current policies without being considered out of compliance with various small group market requirements that do not apply to the large group market (e.g. rating rules and requirement to offer essential health benefits). CMS has clarified that an employer with 51–100 FTEs qualifies for transition relief with respect to a large group policy purchased before January 1, 2016 if the policy is renewed for a plan year beginning January 1, 2016 through October 1, 2016. 

Determining Employer Size

Small group versus large group for purposes of insurance rating is determined on a state-by-state basis through 2015. Most states currently define small group as 50 or less, but many define that count differently (e.g. number enrolled, number of full-time or total employees). Beginning in 2016, however, the same calculation used to determine whether an employer is an applicable large employer under Section 4980H (the “employer mandate”) must be used by all states, and those employers with 100 or less FTEs will be considered small group for insurance rating purposes. This includes the requirement under 4980H rules to aggregate employees across all entities that are part of the same controlled group or affiliated service under §414 rules.

Interaction with Section 4980H

Employers with 50 or more FTEs are considered “applicable large employers” subject to 4980H requirements. Such employers may face potential shared responsibility payments if coverage meeting certain requirements is not offered to substantially all of their full-time employees. Note: An employer with 50–100 FTEs may be considered a small employer for insurance rating purposes and an applicable large employer required to comply with Section 4980H requirements.

For the first year of 4980H application, 2015, a variety of transition relief is available. However, almost all transition relief is conditional upon the requirement that the plan year cannot be changed to be later in the year after February 9, 2014.This includes the transition relief that generally allows employers with 50–99 FTEs to avoid any potential penalties until plan year 2016.

Some employers with 51–100 FTEs may consider moving their current plan year to be later in the year to extend the option to renew their current policies in the large group market through late 2017 rather than having to move to the small group market sooner. However, it is important for such employers to consider whether moving the plan year to allow them to remain in the large group market for another year or two is worth losing transition relief during 2015 from 4980H penalties.

Summary

Whether it is advantageous to be in the small group or large group market depends largely on the products and pricing available in the state issuing the insurance policy. In states that choose to adopt the transition relief, if there are insurers willing to renew existing policies, some employers in the 51–100 range may find it advantageous to remain in the large group market as long as possible (which may make a plan year move to later in the year attractive). For such employers who already offer generous coverage to most full-time employees, such a strategy may be the best option. However, for employers who may be depending upon 4980H transition relief through at least 2015 as they work to redesign their benefits and eligibility to be in compliance, it is important to consider whether the advantages (perhaps better rates) of moving the plan year to remain in the large group market longer outweigh the potential penalties that may apply upon losing 4980H transition relief. And finally, regardless of whether the employer is worried about 4980H transition relief or not, keep in mind that a change in plan year does not generally take place without some administrative hassle (e.g. short plan year, COBRA rates, health FSA elections, etc.).

CMS FAQs (Question #8 & 11) – http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/Final-Master-FAQs-5-16-14.pdf

CMS Transition Relief (Mar. 5, 2014) – http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/transition-to-compliant-policies-03-06-2015.pdf

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

_________________________________________________________________________

Regan Blomme J.D. MBA,
Senior Consultant
Benefit Comply, LLC

Regan Blomme has experience working as an attorney for a major Fortune 500 company, and for a PEO providing benefits and HR services to small employers. She also worked as a legal researcher for Thomson Reuters prior to obtaining her law degree. Regan received her law degree from William Mitchell College of Law, her MBA from The University of St. Thomas, and is a member of the Minnesota Bar Association.

 

• Issue Brief- Employer Reporting Requirements

Employer Reporting Requirements

Issue Date: May 2015

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Beginning in early 2016, employer reporting will be required for the first time based on data from the 2015 calendar year. Depending on the size of the employer and the funding arrangement of the benefits offered, employer reporting requirements vary in regard to what type of information needs to be reported (if any) and whether the employer is required to use Forms 1094-B and 1095-B (the “B” forms) or Forms 1094-C and 1095-C (the “C” forms). This issue brief covers who is responsible for reporting and which forms should be used in different situations.

Background
All applicable large employers — those with 50 or more full-time equivalents (FTEs) — will be required to report whether minimum value, affordable coverage was offered to any employees who were full-time for at least one month during the year based on the 4980H definition of full-time (using the monthly measurement method or the look-back measurement method). And all employers sponsoring a self-funded medical plan will be required to report which individuals were covered under the plan. The employer will report by using Forms 1094 and 1095. Employers filing 250 or more Form 1095s are required to file electronically using the Affordable Care Act Information Returns (AIR) system. Those filing fewer than 250 Form 1095s have the option to file by paper or electronically.

Reporting Requirements by employer and plan type
The table below sets forth which forms employers should use depending on the size of the employer and the funding arrangement of the medical plan offered (if any). In all cases, Forms 1094 and 1095 are provided to the IRS, and a copy of Form 1095 is provided to full-time employees and covered individuals as applicable. Below the table is a more detailed description of each possible arrangement.

 

[table “15” not found /]

Applicable Large Employer: 50 or more FTEs, including FTEs from any related entities under a controlled group or affiliated service group (Section 414 rules)

Fully-insured plan offered by a single employer:

  • Employer is responsible for reporting whether or not a minimum value, affordable offer of coverage was made to any employees who were full-time for at least one month during the year (based on monthly measurement method or look-back measurement method), using Form 1094-C and Parts I and II of Form 1095-C.
  • The insurance carrier is responsible for reporting on any covered individuals, using Forms 1094-B and 1095-B.
  • Full-time employees will receive a Form 1095-C from the employer, and individuals covered under the fully-insured plan will receive a Form 1095-B from the insurance carrier.

Fully-insured plan offered by multiple employers either through a multiple employer welfare arrangement (MEWA) or due to a controlled group/affiliated service group relationship:

  • Each employer is responsible for reporting whether or not a minimum value, affordable offer of coverage was made to his or her respective employees who were full-time for at least one month during the year (based on monthly measurement method or look-back measurement method), using Form 1094-C and Parts I and II of Form 1095-C.
  • The insurance carrier is responsible for reporting on any covered individuals, using Forms 1094-B and 1095-B.
  • Full-time employees will receive a Form 1095-C from the employer, and individuals covered under the fully-insured plan will receive a Form 1095-B from the insurance carrier.

Fully-insured plan offered by a single employer to non-union employees and a self-funded plan offered by a multiemployer plan (a collectively bargained plan) to union employees:

  • Employer is responsible for reporting whether or not a minimum value, affordable offer of coverage was made to any employees (including union employees) who were full-time for at least one month during the year (based on monthly measurement method or look-back measurement method), using Form 1094-C and Parts I and II of Form 1095-C; some coordination with the union may be required to obtain this information, but ultimately it is the employer’s responsibility.
  • The insurance carrier is responsible for reporting on any non-union covered individuals, using Forms 1094-B and 1095-B; the multiemployer (i.e. union) plan sponsor is responsible for reporting on any union covered individuals, using Forms 1094-B and 1095-B.
  • Full-time employees will receive a Form 1095-C from the employer; non-union individuals covered under the fully-insured plan will receive a Form 1095-B from the insurance carrier; and union individuals covered under the self-funded plan will receive a Form 1095-B from the multiemployer (i.e. union) plan sponsor.

Self-funded plan offered by a single employer:

  • Employer is responsible for reporting whether or not a minimum value, affordable offer of coverage was made to any employees who were full-time for at least one month during the year (based on monthly measurement method or look-back measurement method), using Form 1094-C and Parts I and II of Form 1095-C.
  • Employer is also responsible for reporting on any covered individuals, using Form 1094-C and Part III of Form 1095-C; Forms 1094-B and 1095-B may be used instead of the “C” forms for non-employees (i.e. COBRA participants, retirees) at the employer’s discretion.
  • Full-time employees and individuals covered under the self-funded plan will receive a Form 1095-C from the employer (covered non-employees may receive a Form 1095-B from the employer instead).

Self-funded plan offered by multiple employers either through a multiple employer welfare arrangement (MEWA) or due to a controlled group/affiliated service group relationship:

  • Each employer is responsible for reporting whether or not a minimum value, affordable offer of coverage was made to his or her respective employees who were full-time for at least one month during the year (based on monthly measurement method or look-back measurement method), using Form 1094-C and Parts I and II of Form 1095-C.
  • Each participating employer is also responsible for reporting on his or her respective covered individuals, using Form 1094-C and Part III of Form 1095-C; Forms 1094-B and 1095-B may be used instead of the “C” forms for non-employees (i.e. COBRA participants, retirees) at the employer’s discretion.
  • Full-time employees and individuals covered under the self-funded plan will receive a Form 1095-C from the employer (covered non-employees may receive a Form 1095-B from the employer instead).

Self-funded plan offered by a single employer to non-union employees and a self-funded plan offered by a multiemployer plan (a collectively bargained plan) to union employees:

  • Employer is responsible for reporting whether or not a minimum value, affordable offer of coverage was made to any employees (including union employees) who were full-time for at least one month during the year (based on monthly measurement method or look-back measurement method), using Form 1094-C and Parts I and II of Form1095-C; some coordination with the union may be required to obtain this information, but ultimately it is the employer’s responsibility.
  • The employer is also responsible for reporting on any non-union covered individuals, using Form 1094-C and Part III of Form 1095-C; Forms 1094-B and 1095-B may be used instead of the “C” forms for non-employees (i.e. COBRA participants, retirees) at the employer’s discretion; the multiemployer (i.e. union) plan sponsor is responsible for reporting on any union covered individuals, using Forms 1094-B and 1095-B.
  • Full-time employees and non-union individuals covered under the self-funded plan will receive a Form 1095-C from the employer (covered non-employees may receive a Form 1095-B from the employer instead); union individuals covered under the self-funded plan will receive a Form 1095-B from the multiemployer (i.e. union) plan sponsor

Mix of fully-insured and self-funded plan options offered by a single employer:

  • Employer is responsible for reporting whether or not a minimum value, affordable offer of coverage was made to any employees who were full-time for at least one month during the year (based on monthly measurement method or look-back measurement method), using Form 1094-C and Parts I and II of Form 1095-C.
  • Employer is also responsible for reporting on any individuals covered under the self-funded plan, using Form 1094-C and Part III of Form 1095-C; Forms 1094-B and 1095-B may be used instead of the “C” forms for non-employees (i.e. COBRA participants, retirees) at the employer’s discretion; the insurance carrier is responsible for reporting on any individuals covered under the fully-insured plan, using Forms 1094-B and 1095-B.
  • Full-time employees and individuals covered under the self-funded plan will receive a Form 1095-C from the employer (covered non-employees may receive a Form 1095-B from the employer instead); individuals covered under the fully-insured plan will receive a Form 1095-B from the insurance carrier.

Small employer: fewer than 50 FTEs, including FTEs from any related entities under a controlled group or affiliated service group (Section 414 rules)

Fully-insured plan offered by a single employer:

  • No reporting by the employer is required; the insurance carrier is responsible for reporting on any covered individuals, using Forms 1094-B and 1095-B.
  • Individuals covered under the fully-insured plan will receive a Form 1095-B from the insurance carrier.

Fully-insured plan offered by multiple employers either through a multiple employer welfare arrangement (MEWA) or due to a controlled group/affiliated service group relationship:

  • No reporting by the employer is required; the insurance carrier is responsible for reporting on any covered individuals, using Forms 1094-B and 1095-B.
  • Individuals covered under the fully-insured plan will receive a Form 1095-B from the insurance carrier.

Fully-insured plan offered by a single employer to non-union employees and a self-funded plan offered by a multiemployer plan (a collectively bargained plan) to union employees:

  • No reporting by the employer is required; the insurance carrier is responsible for reporting on any non-union covered individuals, using Forms 1094-B and 1095-B; the multiemployer (i.e. union) plan sponsor is responsible for reporting on any union covered individuals, using Forms 1094-B and 1095-B.
  • Non-union individuals covered under the fully-insured plan will receive a Form 1095-B from the insurance carrier; union individuals covered under the self-funded plan will receive a Form 1095-B from the multiemployer (i.e. union) plan sponsor.

Self-funded plan offered by a single employer:

  • Employer is responsible for reporting on any covered individuals, using Forms 1094-B and 1095-B.
  • Individuals covered under the self-funded plan will receive a Form 1095-B from the employer.

Self-funded plan offered by multiple employers either through a multiple employer welfare arrangement (MEWA) or due to a controlled group/affiliated service group relationship:

  • Each participating employer is responsible for reporting on his or her own respective covered individuals, using Forms 1094-B and 1095-B.
  • Individuals covered under the self-funded plan will receive a Form 1095-B from the employer.

Self-funded plan offered by a single employer to non-union employees and a self-funded plan offered by a multiemployer plan (a collectively bargained plan) to union employees:

  • Employer is responsible for reporting on any non-union covered individuals, using Forms 1094-B and 1095-B; the multiemployer (i.e. union) plan sponsor is responsible for reporting on any union covered individuals, using Forms 1094-B and 1095-B.
  • Non-union individuals covered under the self-funded plan will receive a Form 1095-B from the employer; union individuals covered under the self-funded plan will receive a Form 1095-B from the multiemployer (i.e. union) plan sponsor.

Summary
Except for those employers with fewer than 50 FTEs offering no plan or only a fully-insured plan, all other employers are required to do at least a portion of the reporting using either the “B” or “C” versions of Forms 1094 and 1095. Small employers will use the “B” forms, and applicable large employers will generally use the “C” forms (although the “B” forms can be used for coverage of non-employees).  Depending on the funding arrangement of the plans, it is possible that employees will receive more than one Form 1095 (i.e. one from the employer and one from the insurance carrier).

IRS FAQ in regard to employer reporting can be found here.

Final employer reporting forms and instructions can be found here.

IRS draft electronic reporting guide can be found here.

 

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.

• Compliance Alert- EEOC issues regulations addressing ADA requirements for employer wellness programs

EEOC issues regulations addressing ADA requirements for employer wellness programs

Issue Date: April 2015

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The EEOC has issued long-awaited proposed regulations addressing ADA requirements for employer wellness programs. The guidance also addresses the interaction between the new EEOC rules and the existing ACA and HIPAA wellness rules.

Background

In general, the Americans with Disabilities Act (ADA) prohibits employment discrimination based on disability. The ADA directly affects employer wellness programs in a number of ways. For example, the ADA restricts when an employer may make disability-related inquiries or require medical examinations. Wellness programs often include elements of both. For example, a health risk assessment (HRA) may include disability-related questions, and biometric screening programs are considered medical examinations.

Importantly, the ADA includes exceptions for certain types of health plan and wellness programs.  Specifically, an employer may make disability-related inquiries or conduct medical examinations if the program is “voluntary.” Until now, the EEOC had provided very little guidance on how it would determine the voluntary nature of a program, leaving employers in the dark regarding how to design a wellness program that would be in compliance with the ADA rules.

Proposed Regulations

The proposed regulations address the extent to which employers can offer incentives in wellness programs that include disability-related inquiries and/or medical examinations. In some ways, the new EEOC guidance tracks closely with the existing ACA and HIPAA wellness rules. However, it imposes lower limits on the size of the incentive for many common wellness strategies than the limits in the HIPAA wellness rules allow. Importantly, the new rules will not be effective until after publication of the final rules.

Changes to Incentive Limits
Under the EEOC rules, if the wellness program includes disability-related inquiries and/or medical examinations, employers can offer incentives of up to 30% of the total cost of employee-only coverage and the program will still be considered voluntary. This limitation applies to all wellness programs, regardless of whether the program is participatory, health-contingent, or a combination of the two. This is an area in which the EEOC rules differ significantly from existing HIPAA wellness rules. The current HIPAA restrictions on incentives do not apply to participatory programs, so this EEOC rule effectively imposes a new maximum on many types of wellness-related incentives. Prior to this rule, employers could have designed participatory programs with incentives exceeding 30% of the premium. Now if that incentive involves a program that includes disability-related inquiries and/or medical examinations, the maximum incentive possible will be 30%, even if it is a participatory program.

The proposed regulations include special rules for smoking cessation programs. A smoking cessation program that only asks employees whether they use tobacco would not be considered a disability-related inquiry or medical examination, and would not be subject to the EEOC rules. In this case HIPAA rules would still allow an incentive of up to 50% of the premium. However, a wellness program requiring employees to submit to medical testing to determine whether they use nicotine or tobacco is a medical examination and the rules would apply, thereby limiting even tobacco-related incentives to 30%.

Other Changes
In defining a voluntary program, the EEOC takes the position that wellness incentives can be offered to employees as long as participation is not required and nonparticipating employees are neither denied coverage under any employer group health plan nor subject to any adverse employment action. This condition directly addresses a strategy that some employers have begun to adopt in which participation in the employer’s health plan is contingent on the employee’s completing an HRA. Under these new rules, this strategy would violate the ADA.

Employer must also provide employees with a notice that includes a description of the medical information collected, who will have access to it, and how it will be used and kept confidential.

Summary

The proposed regulations address many employer questions, but some issues still need clarification. For example, the proposed rules do not address how the 30% maximum incentive applies when family members also participate in a wellness program. The EEOC is taking comments on the proposed rules and will then issue final regulations. Additional issues may be addressed in those final rules.

 

While every effort has been taken in compiling this information to ensure that its contents are totally accurate, neither the publisher nor the author can accept liability for any inaccuracies or changed circumstances of any information herein or for the consequences of any reliance placed upon it. This publication is distributed on the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice or services. Readers should always seek professional advice before entering into any commitments.