The Employer Mandate’s Torturous Tail

The Affordable Care Act comes into full bloom in January with implementation of the law’s employer mandate, the obligation on all but the smallest employers to offer health coverage to full-time workers or face penalties. Most employers are prepared to satisfy that obligation. But there’s a torturous tail to the employer mandate that many employers are not preparing for, or even aware of.

To enforce the employer mandate, the Internal Revenue Service needs a tremendous volume of information, and intends to collect it from employers and insurance companies. The IRS will require employers to gather and synthesize that information from payroll and benefit administration systems, and report it on up to four separate forms.

Background

The employer mandate applies to employers with at least 100 full-time and full-time equivalent (fictional full-timers determined from part-time hours) employees in the corporate family tree. This threshold drops to 50 full-time/full-time equivalent employees after 2015.

Employers in this “play or pay” boat face a two-tiered obligation: offer at least modest health insurance to 70 percent or more (95 percent or more after 2015) of full-time employees and their children, or risk a penalty for every full-time employee. Also, the coverage offered to the employee—never mind the children—must pay at least 60 percent of covered medical expenses, and must not cost the employee more than 9.56 percent of household income.

To be an effective sheriff, the IRS is demanding that employers supply details about the coverage offered and provided to employees. The reports are due in early 2016, based on the 2015 calendar year. Although that filing deadline is months away, employers must understand the obligations and retool payroll and benefits admin systems to accommodate them.

Here’s the reporting scorecard:

Employers subject to the employer mandate and offering self-insured medical coverage: The common law employer (not necessarily the plan sponsor) issues a Form 1095-C to every employee—not just full-timers—who had coverage for at least a day in 2015.

Part I of the form identifies the employee and employer, and Part III reflects the months in 2015 in which the employee and any dependents, listed by name and Social Security Number, had coverage under the employer’s plan. The employee uses this portion of the form to demonstrate, on his or her federal tax return, satisfaction of the health reform law’s individual mandate.

If the covered employee was full-time (30 or more hours per week) for at least part of 2015, the employer also completes Part II of the form, reflecting the months in 2015 during which the employee was offered coverage. Here is where the employer demonstrates compliance with the employer mandate, with respect to the individual full-time worker.

The employer chooses one of nine codes to describe its offer and to whom it was made (i.e., the employee only, employee and children, etc.), and then one of nine additional codes to report the
affordability of the coverage and other matters.

For full-time employees who received no coverage during 2015 (either it wasn’t offered or the employee declined it),
the employer nevertheless completes Parts I and II of the Form 1095-C, and supplies
a copy to the employee.

If the employer provided self-insured coverage to non-employees (outside directors and perhaps partners, retirees and others), the employer issues these individuals a Form 1095-B, reflecting the months in 2015 during which the individual and any dependents had coverage for at least a day.

The employer sends copies of all these forms to the IRS with a specific transmittal form. Form 1094-C accompanies the Forms 1095-C, and requires the employer to demonstrate compliance with the employer mandate on an aggregate basis. The employer indicates whether it offered coverage to an appropriate percentage of full-time employees, lists by month its employee and full-time employee counts, and identifies all other members of its controlled group.

Employers subject to the employer mandate and offering insured coverage: The employer completes Form 1095-C Parts I and II for every full-time employee, gives the employee a copy and sends
a copy of all the forms to the IRS with a Form 1094-C.

Employers not subject to the employer mandate and offering insured coverage or no coverage. No employer reporting is required.

Employers subject to these reporting rules will want to quickly reach out, if they’ve not already done so, to their payroll and benefits administration vendors, and inquire how prepared the vendors are to
assist the employer in meeting this reporting challenge.