Sound the Alarm: Problems & Costs Associated with ACA Reporting

Corey Connors

On January 1, 2015, the long-anticipated (or dreaded) Affordable Care Act (ACA) employer mandate is set to take effect. Though businesses with fewer than 100 employees won’t be subject to potential penalties for choosing not to offer coverage in 2015, every large employer with 50 or more full-time equivalent employees must be prepared to provide information to the IRS regarding their benefits offerings over the next 12 months. Unfortunately, many employers remain largely unaware of the magnitude of data collection and reporting requirements that await them for tax year 2015.

The information reporting requirements under Internal Revenue Code (IRC) sections 6055 and 6056 will be used to verify an individual’s eligibility for premium tax credits for the purchase of coverage in the Health Insurance Marketplace (exchange). Whether or not an employer is considered large or small under the ACA, an employer offer of minimum essential coverage to an employee generally disqualifies that individual from receiving an advanced premium tax credit to subsidize their purchase of health insurance.

Before digging further into the specifics of each reporting requirement under the ACA, there are several items of note that may present significant challenges to employers and employees regarding compliance with their respective mandates.

Issues abound in reporting process
An element that’s likely to cause headaches is the timing of the reporting. Large employers and insurance companies will have a deadline of March 2016 to report information about employee health benefits provided in 2015. However, eligibility for advanced premium tax credits for purchasing coverage in the exchange occurs when an individual applies for coverage. Tax credits to subsidize the cost of premiums are awarded upfront to defray costs and lower the price tag, not the following year at tax time.

Without access to information from the employer beforehand, the ability to fully verify total household income or whether or not an individual was offered minimum essential coverage from an employer will be difficult. Therefore, it’s possible that some employees will be awarded tax credits for which they aren’t eligible. Using a process called “reconciliation,” individuals who improperly received a tax credit for purchasing exchange coverage when they had an ACA-compliant offer from their employer run the risk of having their credit “clawed-back” at the end of the tax year. If that individual likes and prefers the coverage they purchased in the exchange with a subsidy, there’s potential for blowback on the employer if that subsidy is ultimately reclaimed.

This year, many of the exchanges didn’t implement the reporting mechanism to inform employers that one of their employees had contacted the exchange looking for coverage. Next year, employers will begin receiving notices from their state-based exchange informing them that certain employees applied for coverage in the marketplace. The exchanges will use information provided to them by the employee with their application to contact employers. There are concerns that the information provided may be inaccurate (e.g., was offered coverage but declined) or contain a different mailing address and contact information than the business’s human resource function. Having that notice reach the right person in your company may present as much of a challenge as what happens next
if your business does receive such a notification.

In the event that an employer receives a notification that one of their employees has applied for coverage in the individual exchange and been awarded a tax credit despite an employer offer of minimum essential coverage, the employer will have an opportunity to appeal the decision through a process that has yet to have been established or accurately described. Remember, it’s the awarding of individual tax credits that triggers a large employer’s potential tax liabilities under the ACA’s employer mandate. Without appealing, it’ll likely be assumed that the employer didn’t offer coverage and would be subject to penalties.

Assuming that the notification from the Exchange reaches the appropriate person in your company and that you’re able to verify that you’ve offered ACA-compliant coverage, the successful appeal of an individual premium tax credit award is likely to create some issues for your employee. In addition to having the credits awarded clawed-back upon reconciliation when they report taxes the following year, the employee would immediately become responsible for paying the full cost of the coverage they purchased in the exchange without the subsidy. In the event that they cannot afford it, questions remain regarding whether this would qualify as a life event that might permit the employee to opt back into employer-sponsored coverage. Finally, if they drop coverage altogether until the following year, they’ll be subject to individual mandate penalties for the months that they didn’t carry minimum essential coverage for themselves and their dependent children.

To avoid any or all of these scenarios, it’s imperative that green industry businesses communicate clearly and extensively with their employees about their options for individual mandate compliance. Considering the publicity given to enrollment in the exchange and the opportunity for individual premium tax credits, it’s possible that employees may choose to turn down an employer’s offer of coverage believing that they can get it cheaper elsewhere. Employers must educate their employees about their options for ACA compliance so that the potential issues illustrated above can be avoided.

Employer reporting: who and what
It’s been widely misreported that employers with between 50 to 99 will have their requirements under the ACA delayed for another year until 2016. Though these “mid-sized” employers will not be subject to tax liabilities for failing to offer ACA-compliant coverage in 2015, all employers with 50 or more full-time equivalent employees will be responsible for the reporting requirements under the employer mandate next year. Employers who fail to report on the health benefits they offer may be subject to penalties if they fail to report under IRC 6056, even though coverage penalties don’t apply to them next year.

Large employers must file a return with the IRS and provide a statement to each full-time employee with information regarding an offer of employer-sponsored coverage. The general method under 6056 requires employers to report detailed information about healthcare plans and the number of employees who are employed and offered coverage on a month-by-month basis. Though final regulations provided some limited options for streamlined reporting for large employers in certain circumstances, most green industry businesses aren’t positioned to utilize these streamlined methods.

The data that must be collected and reported by large employers is substantial and may require significant monetary investments for employers to collect and track data. Though draft forms and instructions were published in the summer of 2014, the IRS has yet to release the technical specifications required for employers to report information electronically. Without this technical information, the development of third-party tracking systems that smaller employers might purchase to enable compliance has been slow. With less than a month until employers must begin collecting this monthly data, there are significant concerns regarding cost and the difficulty of compiling this complex data to report.

The elements of data that are required under IRC 6056 reporting for large employers include:

The name, address and employer identification number of the large employer and the calendar year for which the information is reported
The name and telephone number of the large employer’s contact person
A certification as to whether the large employer offered to its full-time employees (and dependent children) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, by calendar month
The number of full-time employees for each month during the calendar year, by calendar month
For each full-time employee, the months during the calendar year for which minimum essential coverage under the plan was available
For each full-time employee, the employee’s share of the lowest-cost monthly premium for self-only coverage providing minimum value that the large employer offered to that full-time employee, by calendar month
The name, address and taxpayer identification number of each full-time employee during the calendar year and the months, if any, during which the employee was covered under an eligible employer-sponsored plan
Whether the coverage offered to employees and their dependents under the employer-sponsored plan meets minimum value and whether the employee had the opportunity to enroll his or her spouse in the coverage
The total number of employees, by calendar month
Whether an employee’s effective date of coverage was affected by a waiting period
Whether the large employer had no employees or otherwise credited any hours of service during any particular month, by calendar month
Information regarding whether the large employer is a member of a controlled group and, if applicable, the name and EIN of each employer member of the controlled group constituting the applicable large employer on any day of the calendar year for which the information is reported

If your company has been tracking hours on Excel spreadsheets or relying heavily on your payroll provider for tracking employment information, the costs for ACA reporting under current law will be considerable. At a minimum, businesses will have to integrate their health benefits tracking systems with their payroll to ensure that they’re meeting the ACA’s coverage requirements for each employee on a monthly basis. Whether this means building a tracking system in-house, hiring additional staff to oversee benefits, having your accountant bill more hours or purchasing an off-the-shelf product when they become available, any means of compliance that a business chooses will require a significantly greater cost than most are anticipating.

Insurer and self-funded reporting
Under section 6055 of the ACA, employers who offer self-funded plans and insurers must file a return with the IRS and provide a statement to each individual who’s covered by plans that constitute minimum essential coverage. The information required to be reported under this provision includes: the name and taxpayer ID of each individual enrolled in minimum essential coverage; the name and address of the primary insured; and the months during which the individual is treated as having minimum essential coverage. As with large employer reporting under section 6056, the reporting under 6055 is intended to facilitate administration of the individual mandate.

Employers of all sizes that offer health benefits will be required, through their insurer, to provide information to satisfy the reporting requirements. Of note under 6055 is that the IRS is mandating employers and insurers to collect Social Security numbers for all covered individuals, including dependents, under this reporting requirement. There are concerns that this information will become an additional compliance challenge, as employers don’t typically collect this information at present.

Likelihood of changes or further delays remote
Further delay of the employer mandate is extremely unlikely. Employers hoping that the IRS might relax enforcement of the employer reporting requirements under ACA sections 6055 and 6056 would be taking a fairly substantial risk as preliminary indications from the Administration suggest otherwise. Now is the time that green industry businesses must reach out to their lawyers, tax consultants, benefits and payroll providers to determine how best to collect the data necessary to comply with the ACA’s reporting requirements. This information must be tracked beginning January 1, 2015.

SAF and its partners in the Employers for Flexibility in Health Care Coalition (E-FLEX) have been advocating for sensible legislative and regulatory changes to the ACA’s reporting requirements. Specifically, SAF and E-FLEX have supported legislation and regulations that would:

Give employers the option of prospectively reporting information about coverage offered to the IRS to increase the accuracy of eligibility determinations for individual tax credits in the exchange
Replace much of the year-end reporting by employers with more streamlined methods like certification or an exceptions-based system
Protect privacy by eliminating the requirement for employers to collect and remit dependents’ Social Security numbers

Stay tuned to SAF for more information and developments on the ACA’s employer reporting requirements, including potential advocacy campaigns to simplify reporting, by visiting www.safnow.org. GT

Corey Connors is Senior Director of Government Relations for SAF.