4 Steps to Prepare for the Affordable Care Act
By Candace Quinn and Michael Kim
Breaking News – Supreme Court Upholds Nationwide Tax Subsidies in Affordable Care Act
On June 6, 2015, the U.S. Supreme Court in King v. Burwell¹ upheld the legality of tax subsidies that are offered to individuals who purchase insurance on federal exchanges. In the ruling, the Court rejected a challenge that hadthreatened to remove a fundamental pillar of the Affordable Care Act (“ACA”) and undermine the largest policy initiative of the Obama Presidency.
The 6-3 ruling upheld an Internal Revenue Service rule that purchasers of health insurance, whether on a federal or state operated exchange may be eligible for tax credits or subsidies. A contrary ruling would have undermined a key feature of the ACA and revoked subsidies for those individuals who did not purchase health insurance from state maintained exchanges. The ruling is the Court’s second decision in three years to preserve the ACA in the face of legal challenge.
Ongoing Requirements of the ACA
Applicable Large Employer (“ALEs”) are now required to offer qualifying health insurance coverage to their Full-Time Employees (and their dependents up to age 26). If an ALE does not offer qualifying health insurance, then significant penalties could be assessed on an annual basis. ALEs are also required to keep track of data related to health insurance coverage that is offered (if any), and provide such information to both their employees and the IRS (additional penalties are assessed if this information is not provided).
It is essential that all employers take the following steps to address the Affordable Care Act (see attached flowchart for additional information):
1) Conduct an employee count and determine ALE status
2) Learn about the Health Care Reform compliance requirements
3) Determine if transitional relief is available
4) Determine the best course of action to take
Step 1: Conduct an Employee Count and Determine ALE Status
An employer with 50 or more Full-Time Employees or Full Time Equivalent Employees is considered an ALE that is subject to the Health Care Reform. In calculating the number of Full-Time or Full-Time Equivalent Employees, employers must also determine whether they are a member of a Controlled or Affiliated Service Group. All employees from such a group should be included in the calculation.
Step 2: Learn About the Compliance Requirements of the Health Care Reform
(A) Offer Qualifying Health Insurance to Full-Time Employees As provided above, the ACA requires ALEs to offer qualifying health insurance to Full-Time Employees (and their dependents up to age 26) that is both Affordable (where the employee’s share of costs must be less than 9.5% of their household income) and provides Minimum Value (designed to pay at least
60% of an employee’s total cost of medical services expressed as an actuarial value). Even if an ALE currently offers health insurance to its employees, it must still test whether these requirements are satisfied.
The penalties for not offering health insurance or offering inadequate health insurance to Full-Time Employees can be substantial. For example, an ALE with 100 Full-Time Employees could face a possible annual penalty of $140,00 for not offering health insurance.
(B) Employer Reporting Requirements – IRS Releases Final Form 1094 and 1095 The Health Care Reform imposes significant information gathering and reporting responsibilities on ALEs throughout the year.
• Form 1094-C - ALEs must submit this form to the IRS on an annual basis. The information on this form includes the monthly total number of Full-Time Employees, monthly total number of employees, offers of health insurance to each Full-Time Employee, and additional related information.
• Form 1095-C - ALEs must prepare this form for each Full-Time Employee and provide a copy to them and the IRS on an annual basis. The form includes monthly information on offers of health insurance, enrollment in the company’s health insurance plan, Full-Time Employee status, and other related information.
The IRS released final forms and instructions under the ACA which require reporting for ALEs.
The final Forms 1094-B, Transmittal of Health Coverage Information and 1095-B, Health Coverage and instructions are used to report information about covered individuals to the IRS. The Form 1095-B is used to report information about employees covered by minimum essential coverage and, therefore, not liable for the individual shared responsibility payment.
The IRS also released Forms 1094-C Transmittal of Employer – Provided Health Insurance Offer and Coverage Information Returns and 1095-C, Employer Provided Health Insurance Offer and Coverage Instructions. Fully insured ALEs will need to report using 1094-C/transmittal forms and parts 1 and 2 of Form 1095-C (Individual Employee Form).
Subject to a maximum of $1.5 million for the calendar year, relief may be available for incomplete or incorrect reporting for 2015 if the employer made a good faith effort to comply on their statement or return. ALEs should make note of the following filing dates in 2016 based on 2015 data:
• 1094-C filing due by March 1, 2016
• 1095-C filing due by January 31, 2016
• Based on 2015 company medical benefit information
• Must be filed electronically for companies with more than 250 W2’s
• 1094-C is equivalent to the transmittal form/W3 and must be filled out per EIN
• 1095-C is equivalent to the W2 and must be filled out for every employee active and termed for the year, INCLUDING all dependents and their Social Security Numbers and Dates of Birth
• Guarantee filings are done on time by confirming any deadlines with your payroll provider
Step 3: Determine if Transitional Relief is Available
ALEs that have fewer than 100 Full-Time or Full-Time Equivalent Employees are generally eligible for transitional relief from the Employer Mandate for the 2015 tax year, absolving the ALE from paying any penalties for only the 2015 tax year. However, employers should be aware that they must still file Forms 1095-C and 1094-C in order to qualify for this relief. It is, therefore, critical for employers to conduct an employee count and determine whether this relief is available to them.
Step 4: Determine the Best Course of Action
The information provided herein summarizes the ACA and should not be considered an all-inclusive guide to its rules and requirements. There are many nuanced rules and additional exemptions that could apply. As such, it is highly recommended that all organizations conduct a detailed analysis of their status to determine the optimal solutions available to them.