You heard it was coming and you’ve seen it start to arrive. You’ve also heard the old saying, “In Like a Lion and Out Like a Lamb,” or vice versa, and although that saying has nothing to do with health care reform, the ongoing updates to ACA legislation can leave one feeling like they’re trying to wrestle an on-again off-again lion, similar to the unpredictable turbulence we can experience with weather in spring time! Never the less, wrestle we must and today’s wrestling match features reporting for the Individual Mandate and Employer Shared Responsibility focusing on Forms 1094 & 1095.
ACA added Section 6055 to the Internal Revenue Code (“the Code”). This is where the Code says every provider of minimum essential coverage will report coverage information to the IRS by filing an information return and furnishing a statement to participating individuals. This information is then used by the IRS to administer, and individuals to show compliance with, the Individual Mandate.
ACA also added section 6056 to the Code, which requires applicable large employers to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage the employer offered. This information is used by the IRS in determining whether employers owe a fee for not providing the mandated coverage (Shared Responsibility) and whether or not individuals are entitled to a subsidy if they purchase coverage through one of the Insurance Exchanges.
In very simple terms, the individual mandate is the part of the law that says all individuals are required to have minimum essential health coverage. This is similar to the way cars on our streets are required to have a certain amount of insurance (at least in most states). Employer shared responsibility is the part that says certain large employers are required to make minimum essential health coverage (that is affordable) available to its employees OR pay a fee to the government who will then make it available through the exchanges. As with all legislation, there is a jungle of complexities to the individual mandate and employer shared responsibility requirements (remember that lion we referenced earlier?), but this is the nutshell version.
The Internal Revenue Service is responsible for the administration of these requirements. In order to do so, they must gather information on individuals and employers to confirm everyone is doing what ACA requires. So how is the information gathering accomplished? You guessed it… they have forms for that! Depending on your plan(s), someone will need to file information on Forms (Form 1094-B, Form 1095-B, Form 1094-C and Form 1095-C) with the IRS in February/March of 2016 which will report data from 2015. (annually thereafter)
- Forms 1094-B & 1095-B provide the Minimum Essential Coverage (MEC) reporting mandated by IRC Section 6055 (Individual Mandate).
- Forms 1094-C & 1095-C provide the Applicable Large Employers’ (ALE) reporting mandated by IRC Section 6056 (Shared Responsibility).
And Then There Were Forms!
The IRS has published final reporting forms and instructions, as well as FAQs for these reporting requirements.
Note: data included in the forms will be for a “calendar year” regardless of what your “plan” year may be.
Combined Reporting For ALEs: ALEs may use a single form (Form 1095-C) for reporting the information required under both Section 6055 and Section 6056. An ALE that sponsors a self-insured plan will report on Form 1095–C, completing both sections to report the information required under both Sections 6055 and 6056. An ALE that provides insured coverage will also report on Form 1095–C, but will complete only the section of Form 1095–C that reports the information required under Section 6056. Section 6055 reporting entities that are not ALEs will report on Form 1095–B. An employer that uses Form 1095-C to combine reports under Sections 6055 and 6056 may furnish the information to individuals as required by those sections in a single statement.
Although the first reporting deadline isn’t until 2016, you will need to begin capturing data as of January 2015!
Failure to file a return or furnish a statement can result in penalties up to $100 per return/statement, with a maximum penalty of $1.5 million. The IRS may waive penalties if a failure is due to reasonable cause and not willful neglect. Penalties are reduced if a corrected return is filed within 30 days of the required filing date or by a lesser amount if filed by August 1 following the required filing date. Corrected returns are required even if the returns were accurate at the time filed.
For example, if a child is born during a month and enrolled in coverage retroactively or if coverage is retroactively cancelled due to a failure to pay a premium, and the change renders a return inaccurate, a corrected return would be required.
Transitional relief is provided for the 2016 returns only (for the 2015 calendar year). The IRS will not impose penalties for incorrect or incomplete information on the 2016 return or statement if a reporting entity can show that it has made a good faith effort to comply with the information reporting requirements. If a return or statement is not timely filed, penalties will apply unless the employer can demonstrate reasonable cause for the delay.