The Affordable Care Act (ACA) put in place Code Sections 6055 and 6056, which provide for information return reporting of health insurance coverage not only to the IRS, but also to employees and individuals who have been offered, and who have, health coverage. It is sort of a W-2 for health coverage. The purpose of the forms is to (1) enforce the Individual Shared Responsibility mandate that every individual must have minimum essential health coverage or pay a penalty, and (2) enforce the Employer Shared Responsibility mandate that all applicable large employers offer coverage to their full-time employees or pay a penalty.
The reporting is always on a calendar-year basis and will be done on various versions of a Form 1095:
Individuals who are enrolled in insurance coverage on one of the state Marketplaces receive Form 1095-A from their state Marketplace that provides information about the individual who purchased the state Marketplace coverage and any spouses and/or dependents who are also covered on the policy. In addition, the premium information and the advanced payment of the premium tax credit the individual received is reported by month. Not only does this tell the federal government the individual has health coverage and thus is not subject to the Individual Mandate penalty, but the premium and credit information is reconciled on the individual’s income tax return to his or her actual household income and calculates the proper credits for the year, resulting in an additional credit in the form of a refund or in repayment of some of the advanced credit in the form of tax due. See prior articles for an explanation of the credit and subsidies.
Insurers who offer fully insured health insurance to individuals or businesses will report the health insurance coverage to the IRS and to the covered individuals on Form 1095-B. (There is a Form 1094-B, which is the transmittal form to send an employer’s or a multiemployer plan’s group of the Forms 1095-B to the IRS). The insurer prepares one Form 1095-B for each person covered and identifies the individual and each dependent covered, along with the employer information if it is a group health insurance policy, and the insurer providing the coverage. Social security numbers are required for each person with health insurance coverage, so the coverage can be traced back to individual income tax returns.
The Individual Mandate is being reported on individual income tax returns on the honor system. For calendar year coverage, individuals will receive the Form 1095-B in January following the calendar year, and the IRS will use the form to cross-reference to individual income tax returns to verify whether they actually have health insurance coverage.
Form 1095-C – The Employer Filing Requirement:
Employers that are considered an applicable large employer (ALE) because they have at least 50 full-time equivalent (FTE) employees must file a Form 1095-C for each full-time employee. The form indicates whether the employer offered minimum essential health coverage (MEC) to each employee it was required to. Full-time employees are determined by either the Monthly Measurement Period or the Look-Back Measurement Period method (see the article on “Determining Full-Time Employees”) and are basically anyone who is determined to work an average of 130 hours or more per month.
The transmittal form for the Forms 1095-C is Form 1094-C, but it includes quite a bit of information to enable the IRS to calculate the Employer Mandate penalty if it is determined to apply to the employer. If more than 250 Forms 1095-C are being filed for an employer, electronic filing is required. In addition to the Form 1095-C being used to enforce the Employer Mandate, it is also being used to determine whether individuals are eligible for subsidies or premium tax credits when they purchase state Marketplace health insurance coverage. If an employer offers employees MEC, the employees are not eligible for subsidies or premium tax credits to purchase their Marketplace insurance.
The Form 1095-C reports the employee and the employer information and also reports, by month, whether that employee was offered MEC. Penalties are calculated on a month-by-month basis, so information is reported for each month. The form also reports, using codes, why an employee might not have been offered coverage for a specific month (e.g., new employee, terminated employee, etc.). The employee share of the lowest-cost single premium is also reported to determine affordability under the ACA requirements of the Employer Mandate. This is the information to be reported for each full-time employee in Part I and Part II on the form. It is reporting an offer of coverage, whether the employee takes coverage or not. For fully insured plans, the insurer will report employees who actually take coverage on Form 1095-B.
Form 1095-C – Self-Funded Health Plans:
Employers that self-insure health coverage for their employees must report the offer of coverage as explained in the previous section, but they must also complete Part III of Form 1095-C, which identifies the employee, spouse, and dependents who are actually covered under the employer’s plan. Just as with the Form 1095-B, the social security number for everyone covered under the plan must be reported to the IRS on the Form 1095-C so the IRS can match actual coverage to individual income tax returns. The IRS says that social security numbers MUST be obtained, which for most employers is going to take some time. The date of birth is permitted to be used only as a temporary solution if an employer does not get the social security number in time to meet filing deadlines, but the IRS expects the social security number to be reported the next calendar year. An employer cannot choose to use the date of birth in place of the social security number.
Note that employers with fewer than 50 FTE employees who are self-insured must also file Form 1095 to report employees who actually take their health coverage. This should be a rare occurrence, since small employers generally do not self-fund their health plan because of the risk involved. However, some small employers are starting to investigate coverage using captive insurance arrangements to pool a number of small employers together to get some of the benefits of self-funding, such as avoiding some ACA mandates. These small employers will use Form 1095-B to do this reporting.
Form 1095-C – Non-Full-Time Employee and Non-Employee Reporting:
Employers with fully insured plans do not need to prepare and file a Form 1095-C for part-time employees who may enroll in health insurance. They also do not need to file forms for non-employees who are on the employer’s group health insurance, such as board of directors’ members, retirees, COBRA participants, or non-employee shareholders. Coverage for these individuals is reported by the insurer on Form 1095-B.
For employers with a self-funded health plan, individuals with coverage will need to be reported on Form 1095-C (or the employer can report on Form 1095-B if it wishes), along with any spouses and dependents who are also covered on the self-funded group health plan. Social security numbers need to be reported for all of these individuals as well.
Preparing and Filing the Forms
Once an employer has determined it is an ALE and is subject to reporting, gathering the information necessary to complete these filings will require a coordinated effort between payroll and benefits departments, as well as insurance providers (i.e., agents, consultants, or third-party administrators). Many payroll providers are providing the Form 1095-C preparation service, but it often involves either a report from a human resource information system (HRIS) solution or some sort of data gathering process on the offer of insurance to employees. Determining who needs to be reported is the first step, and many payroll providers and payroll and HRIS software systems have reporting that is based on hours worked per month by employees to determine when an employee becomes full-time and therefore needs to be offered coverage and, in turn, needs to be reported on Form 1095-C.
Employers need to coordinate payroll and benefits to meet their filing obligations. Since all of this information reporting must be tracked on a monthly basis, hours and the offer of coverage data must be accumulated by month in software or by providers that will be handling the Form 1095-C reporting for the employer. For most employers, this information gathering and the preparation of forms are not something that can be prepared in an hour or two. According to the form’s instructions, the IRS estimates it will take, on average, four hours to prepare the Form 1094-C and 12 minutes for each Form 1095-C provided to each employee. Keep in mind that these estimates assume you have already gathered the information to prepare the forms and were tracking hours all throughout the year. In addition, these are averages. The larger your employee base, the more time it will take.
If you desire assistance in evaluating your options for Form 1095-C reporting, please contact your Wipfli Relationship Executive. If Wipfli is your company’s payroll provider and you are an ALE, Wipfli will be preparing the Forms 1095-C for you as part of your payroll service.