Employers should take some time this fall to review the changes to the Affordable Care Act (ACA) Information Returns (Forms 1094-C and 1095-C referred to as ACA Information Returns or (AIR)) found in draft form on the Internal Revenue Service (IRS) website.
Julie Lewis, Minnesota 2005, is an attorney in the Madison office of Strang, Patteson, Renning, Lewis & Lacy, S.C., where she practices in the areas of employee benefits, labor and employment, school, and commercial law.
Many employer group health insurance plans use a fourth-quarter renewal period, making this fall an important time for planning ahead. Certain ACA transition relief options have expired along with the filing deadline extensions offered in 2016 for the 2015 reporting year. Employers will have less time to make more decisions without the leeway of this year’s IRS-sponsored learning curve.
Regular AIR Filing Deadlines Apply This Year
The ACA’s first official reporting year was 2015. ACA-covered employers are required to provide each full-time employee with a Form 1095-C (similar to a Form W-2) showing the status of the employee’s employer-sponsored group health insurance coverage for the prior calendar year. The filing deadline for the 2015 calendar year was originally Jan. 31, 2016, but the IRS allowed a one-time extension to March 31, 2016. Employers are also required to file a group health insurance transmittal return called Form 1094-C. Form 1094-C transmits a copy of each Form 1095-C to the IRS and certifies the details of the employer’s group health plan offer of coverage on a cover sheet. The IRS extended the original due date for the 2015 Form 1094-C from Feb. 29, 2016, to June 30 for electronic filers.
The 2016 filing deadlines are three to four months earlier than they were for 2015 which not only makes the 2017 due dates earlier but also shortens the time period employers have in 2016 to prepare for next year. Employers who just finished filing their 2015 Form 1094-C in June may not be thinking about the next one but the 2016 1095-C forms must be delivered to employees by Jan. 31, 2017. The 1094-C employer return will be due Feb. 28, 2017, for non-electronic filers and March 31, 2017, for employers who file electronically. Keeping in mind that the IRS allowed for “good faith compliance efforts” on the 2015 AIRs, employers will be held to a less forgiving reasonable cause/willful neglect standard for AIRs filed in 2017 and subsequent years.
AIRs Should Inform the Renewal Process
The group health insurance renewal process is experiencing a system-wide reset as employers realize that their AIR reporting is an important determinant of total plan cost. Group health insurance cost efficiency is more important than ever. At the same time, employers should be highly motivated to operate as efficiently as possible within ACA parameters. Group health plan effectiveness will, in part, be measured in the time and money saved by accurate AIR planning.
AIR reporting will also be a critical data tool used by the IRS, the Department of Health and Human Services, and the Department of Labor to ensure that premium tax credits are properly paid to qualified employees, that employer and insurer penalties are accurately and timely assessed, and that the group and individual health insurance markets facilitate employer ACA compliance. For these reasons, employers are well-advised to incorporate AIR analysis in their group health plan renewal and purchasing decisions starting with this year.
Factors That Can Make a Difference
In addition to earlier deadlines, employers should evaluate four key ACA factors when working through their group health plan renewals:
- Transition relief/expired – Some forms of transition relief have expired. This list includes the 2015 definition of small employer and the standard deduction for section 4980(a) penalties. Employers who employ between 50 and 100 full-time equivalent employees (FTEs) were small employers in 2015 but will be applicable large employers for the 2016 reporting period. Similarly, in 2015, employers were allowed to deduct 80 employees when calculating the 4980(a) (no offer of coverage) penalty but will only be allowed to deduct 30 employees from that calculation for the 2016 AIR reporting period. Other forms of 2015 transition relief have also expired.
- Transition relief/carry-over – Transition relief is still important, particularly for non-calendar year plans, because employers can continue to claim transition relief for the months of their 2015/16 plan year that fall in 2016. An employer with 80 FTEs and a non-calendar year plan can claim small employer transition relief for each month of 2016 that is included in the employer’s 2015/16 plan year. Attorneys, tax advisors and insurance consultants should consider the 2016 AIRs now to ensure that employers accurately receive credit for all months of applicable carry-over 2015 transition relief.
- Aggregation – Contrary to the Internal Revenue Code Section 414 (b), (c) and (m) definitions of controlled groups and affiliated service groups, the ACA extends these requirements beyond private industry to all applicable large employers including nonprofits and governments. Private, public and nonprofit entities with fewer than 50 FTEs that are controlled group members or operate as affiliated service groups can be considered to be a member of an applicable large employer for ACA purposes. This means that each small entity controlled group member with under 50 FTEs must separately file AIRs and could, potentially, be subject to applicable ACA penalties on a prorated basis. All 1094-C filers are required to report whether they are “aggregated Applicable Large Employer group” members and identify the other members of the group by entity name and tax identification number.
- Cost analysis – Health plan options should be modelled with the employer shared responsibility penalties in mind. Incorporating penalties, or partial penalties, into the plan may be less expensive than offering insurance coverage, in some cases.
This year’s group health plan renewals should include more than plan cost comparisons. Anticipating the 2016 AIR filing requirements will make the purchase of group health insurance a more precise and strategic business decision for employers.
For more information, see Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers (Section 6056) on the IRS website.