Understanding the Employer Shared Responsibility and ACA Reporting
Part 1 of 3 of our Health Insurance Series

by William F. Schaake, CIC, CRM, CLCS, President of Group Coverage, Inc. 516-576-0007 and Norbert F. Kugele, Partner with Warner Norcross & Judd LLP 616-752-2186 (sources: IRS.gov and 2015 Instructions for Forms 1094-C and 1095-C) *

The Affordable Care Act (ACA) created a new framework for expanding the number of individuals who are covered by medical insurance. First, it introduced Individual Responsibility, which requires most individuals to have medical insurance or pay an additional tax. Second, to ensure that individuals have access to affordable coverage, it simplified underwriting rules, created an insurance Exchange for each state with federal subsidies available for families with income below 400% of the federal poverty level, and put in place incentives for states to expand Medicare for low income individuals. Third, because most people in the United States obtain their medical coverage through their employers, it establishes Employer Shared Responsibility, which requires employers over a certain size to either offer medical coverage to substantially all full-time employees or pay a penalty to help fund the subsidies available through the Exchanges. A key component of the Employer Shared Responsibility “play or pay” framework is a new information reporting requirement for health plans and many employers.

In this series of articles, we will take a detailed look at the Employer Shared Responsibility requirements, starting with some basic information on who is subject to the requirements. Because we are in the middle of the first reporting cycle, we will also cover the reporting requirements, including the 1094-C forms that many employers will have to file with the IRS by the end of May or June.

What is the Employer Shared Responsibility?

For 2015 and after, employers employing at least a certain number of employees (generally 50 full-time employees or a combination of full-time and part-time employees that is equivalent to 50 full-time employees) will be subject to Employer Shared Responsibility.

If your company is an applicable large employer, then you are subject to the Employer Shared Responsibility provisions, regardless of whether you are a for-profit, non-profit, or government entity employer.

Employer Shared Responsibility provisions are found in section 4980H of the Internal Revenue Code.
As defined by the statute, a full-time employee is an individual who averages at least 30 hours of service per week.
An employer that meets the 50 full-time employee threshold is referred to as an “applicable large employer” or “ALE.”

The consequences of being an applicable large employer include:

Complying with new ACA reporting requirements (discussed in more detail below); and
Being subject to play or pay requirements that require employers to either offer coverage to substantially all full-time employees or pay a penalty to help fund subsidies available through the Exchange (to be discussed in upcoming articles).

Who is Subject to the Employer Shared Responsibility?

To be subject to the Employer Shared Responsibility provisions for a calendar year, your company must have averaged during the previous calendar year at least 50 full-time employees or a combination of full-time and part-time employees that equals at least 50.

To determine your status, you must count all employees (subject to a limited exception for certain seasonal workers), regardless of whether the employees are eligible for health coverage from another source, such as Medicare, Medicaid, or a spouse’s employer.

Employees working only abroad, whether or not U.S. citizens, generally will not be taken into account for purposes of determining whether an employer is an applicable large employer or for purposes of determining whether the employer owes an Employer Shared Responsibility penalty or the amount of any such penalty.

For example, an employer that has 40 full-time employees during the year (that is, employees with 30 or more hours of service per week on average) and 20 employees who average 15 hours of service per week has the equivalent of 50 full-time employees and is therefore an applicable large employer.

You must take seasonal workers into account in determining the number of full-time employees. However, if your workforce exceeds 50 full-time employees (including full-time equivalents) for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal workers, then you are not considered an applicable large employer.

Seasonal workers are workers who perform labor or services on a seasonal basis as defined by the Secretary of Labor, and retail workers employed exclusively during holiday seasons.

For this purpose, you may apply a reasonable, good faith interpretation of the term “seasonal worker.”

Each year, you must determine whether you are considered an applicable large employer based on the number of employees you had during the prior calendar year. For example, if your company averages at least 50 full-time employees (including full-time equivalents) during 2016, it will be considered an applicable large employer for 2017. To determine your status, you must first calculate the number of your full-time employees and your full-time equivalent employees each month of the year, and then calculate the average for the entire year. This averaging takes into account fluctuations that many employers may experience in their work force across the year.

When determining whether an employer is an applicable large employer, all employers that are part of a controlled group of companies (that is, companies that meet certain common ownership or control thresholds under the federal Tax Code) must be treated as a single employer.

Reporting to Employees Who Are Covered Under Your Medical Plan—All Employer-Sponsored Group Health Plans

Starting with the 2015 calendar year, all group health plans (whether sponsored by an applicable large employer or a small employer) must send a report to plan participants describing who is covered under the plan and the months of coverage. Individuals use these forms to validate that they are meeting the Individual Responsibility requirements.

If your medical plan is fully-insured, the insurer is responsible for this reporting obligation and sends 1095-B forms to plan participants. If your company sponsors a self-insured medical plan, then you are responsible for reporting the information. While small employers also use the 1095-B form for this purpose, for applicable large employers it is simpler to use part III of the 1095-C form, which is also used to report information to full-time employees (see below).

These reports are generally due by the January 31 that follows the end of the calendar year—but for the 2015 calendar year, the deadline was extended until March 31, 2016. The deadline for the 2016 calendar year remains January 31, 2017.

Reporting to Full-Time Employees—Applicable Large Employers

In addition to reporting who is covered under the medical plan, if you are an applicable large employer then you must also send a 1095-C report to all employees who were considered full-time during the calendar year—even if for just one month of the calendar year. The information you must report includes information on whether the employee was eligible for coverage (line 14 of the 1095-C form), and in most cases if eligible the cost of individual coverage for that employee (line 15). You must also report whether the employee was covered under your medical plan, and if not, whether the offer met an affordability safe harbor or other information about the employee’s status (line 16).

For most individuals, this is simply reported for informational purposes. But the IRS will use this information to verify whether individuals receiving subsidies through the Exchanges actually qualify for the subsidies, and whether an applicable large employer is subject to Employer Shared Responsibility penalties

Like the 1094-C, these reports are due by January 31 following the end of the calendar year, with the deadline for 2015 extended until March 31, 2016. The deadline for the 2016 calendar year also remains January 31, 2017. If you discover a mistake in any of the 1095-C forms, you are required to issue a corrected form. The penalty for missing or incorrect forms is $250 per form (doubled if the IRS finds intentional disregard to comply with the reporting or filing duty). The IRS will not enforce penalties for 2015 if there is a good faith effort to comply and forms are provided and filed on time—but IRS officials have commented informally that this nonenforcement rule does not apply if incorrect forms are not corrected.

Reporting to the IRS

Insurers and small employers sponsoring self-insured health plans that send out 1095-B forms are required to bundle the forms together and mail or electronically transmit them to the IRS along with a 1094-B form. The 1094-B is simple and completing it is fairly straightforward.

A much more complicated form is the 1094-C, which Applicable Large Employers must use to mail or transmit 1095-C forms to the IRS. Completing the 1094-C requires additional information that the IRS will use to determine whether your company owes any Employer Shared Responsibility penalties. For employers who are part of a controlled group of companies, each employer is responsible for filing a 1094-C relating to its employees.

Some of the key information that the IRS will use to determine Employer Shared Responsibility penalties is in Part III of the 1094-C. Your company must indicate in column (a) whether you met your target of offering coverage to substantially all of your full-time employees and in column (b) you must identify the number of your full-time employees. For these purposes, you do NOT need to include any employees who were working full-time but were considered in a limited non-assessment period (where code “2D” appears in line 16 of the employee’s 1095-C form). Also, if you sponsor a non-calendar year medical plan that meets transition rule requirements, then when determining whether you’ve met your targets each month, you can count an employee who was ineligible for coverage as having received an offer of coverage for those months in which code “2I” appears in line 16 on the employee’s 1095-C. The target for 2015 was to offer coverage to at least 70% of full-time employees, but for 2016 and years thereafter, the target is an offer of coverage to at least 95% of full-time employees.

You will also want to pick the correct code in column (e). If your company averaged at least 50 but no more than 99 full-time equivalent employees during 2014, you are not subject to Employer Shared Responsibility penalties during 2015 and should use code A for all 12 months. If your company averaged 100 or more full-time employees during 2014, then you should use code B for all 12 months to indicate that you are relying on the 70% offer of coverage target for 2015 instead of the 95% target.

An Employer who offered affordable, minimum value coverage to at least 98% of its employees who receive a 1095-C form has a simplified reporting obligation. Such an employer will not need to report the number of full-time employees in column (b). This is particularly helpful for employers who offer coverage to both full-time (those with at least 30 hours of service per week) and part-time employees (those with less than 30 hours of service per week) but do not keep track of which employees are considered full-time or part-time. In order to take advantage of this rule, the employer will need to check the 98% offer box on line 22, which amounts to a certification that at least 98% of the employees receiving the 1995-C forms were eligible to participate in a medical plan that meets affordability and minimum value requirements during the months that they were employed and not in a limited non-assessment period.

Your 1094 filing deadline depends on whether you file by paper or electronically. The normal deadlines are February 28/29 for paper filings and March 31 for electronic filings. Electronic filing is mandatory for an entity this is filing 250 or more forms. For the 2015 calendar year, the deadlines have been extended until May 31, 2016 for paper filings and June 30, 2016 for electronic filings.

* https://www.irs.gov/Affordable-Care-Act/Employers/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Basics and https://www.irs.gov/pub/irs-pdf/i109495c.pdf

Disclaimer - Please note that the articles written by their authors does not constitute legal advice either by Group Coverage, Inc., Warner Norcross & Judd LLP or the authors of the article. In addition, it should be noted that Group Coverage, Inc. Warner Norcross & Judd LLP, and the authors, assume no liability for the information contained. The information contained in the articles is for information only and you should seek the advice of a qualified attorney. This article has been prepared for informational purposes only. It is not a substitute for legal advice addressed to particular circumstances. You should not take or refrain from taking any legal action based upon the information contained herein without first seeking professional, individualized counsel based upon your own circumstances.

*Part 2 of the series will cover: When an employer will be liable for an Employer Shared Responsibility penalty.

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