The first major phase of the Affordable Care Act (ACA) came into effect as of January 2014. The individual mandate was implemented requiring all citizens of the United States to have medical coverage or face a financial penalty. Depending upon their number of full-time employees/equivalents, large employers will not have to comply with the employer mandate until 2015/ 2016. In 2015, employers with 100 or more employees/equivalents must provide 60% of the minimum essential value health care coverage and employees’ contributions cannot exceed 9.5% of the employees’ W-2 income or the employer will be subject to a financial penalty. Employers with 50-99 employees/ equivalent will not be required to provide minimum essential value health care coverage until 2016. Initially, all large employers and individuals were required to have coverage as of January 2014, but the U.S. government decided to delay the employer requirement. One thing that may remain a challenge to employers and individuals in 2014/15 will be the fees, taxes and reporting requirements of the ACA.
Fees and Taxes
The fees began with the Patient-Centered Outcomes Research Institute fee (PCORI), which was first effective for plan years ending after October 1, 2012, and due on the following July 31. For the first year the cost was $1.00 per member per year. It was adjusted the following year to $2.00 per member per year. The Secretary of the Treasury will adjust this $2.00 fee by adding an inflationary adjustment in 2015. As an example, if the Secretary feels that medical inflation is at 7%, then the fee per member per year will increase to $2.14 for the 2014 plan year, payable on July 31, 2015. This fee is required for all who have fully-insured or self-funded programs. This fee is due to expire on September 30, 2019.
Annual Health Insurance Industry Fee
The Annual Health Insurance Industry fee commenced in 2014 and is only applicable to insurers of fully-insured plans. It will remain as a permanent premium tax under the ACA. The fee is based on the insurer's premium revenue for the preceding year. In 2014, it is estimated that this fee will be 2.3% of the fully insured medical, dental, prescription and vision care premium and may increase to 3% to 4% of the premium over the next several years. It is expected that insurers will pass this fee on to the insured client. Accordingly, employers who have a larger number of employees that are covered in its insured group health plan may contemplate changing to a self-funded program to avoid the tax. Individuals with individual health policies will not, however, typically have this choice unless they can self-fund their own medical coverage.
Transitional Re-Insurance Fee
This fee must be paid by fully-insured and self-funded employer groups. It is scheduled to be phased out after calendar year 2016. The projected amount to be collected by the government as a result of this fee will be reduced over the 3-year period from an estimated $12 billion in 2014 to $5 billion in 2016. The fee is based on the number of participants in the group health plan. As an example, if an employee has a spouse and two children insured under the plan, the employer will pay a fee of $5.25 per member per month or $252 annually for the 4 members. In 2015, this fee will be reduced to $3.50 per member per month and in 2016 it will be reduced to $2.19 per member per month.
In most situations, the fee for fully-insured members will be included in the premium and self-funded employers will be required to pay the fee in two installments beginning in January 2015. Interestingly, most group health plans for union employees are exempt from this fee for the plans 2015 and 2016 plan years.
Risk Adjustment Fee
As of January 1, 2014, fully-insured individual and small-group plans in and out of medical exchanges will pay a Risk Adjustment fee of $1.00 per member per year. This fee is not supposed to increase and will be in effect permanently. The purpose of this fee is redistribution of premiums from plans with healthy populations to plans with unhealthy populations.
Individual Penalty Tax for Failure To Have Creditable Health Care
In 2014, individuals who fail to obtain creditable medical coverage will face a penalty tax, either at 1% of family income or $95 for an adult and $47.50 per child, whichever is greater. However, it should be noted that because of the major issues with the health care marketplace website, if an individual can demonstrate that this causes a hardship, in all likelihood the penalty tax would be waived in 2014. In 2015, the penalty tax would increase to 2% of family income or $325 for an adult and $162.50 per child.
For 2014, any penalty tax due would be filed with the individuals’ 2014 income tax return. As an example, if the person owed the IRS $250 for failure to obtain health care in 2014 and was receiving a $500 refund for his 2014 tax year, the net tax refund would only be $250. Due to U.S. government programming issues that occurred in 2013, the IRS is not prepared to collect penalty tax in the event the person filing is not receiving a refund. We would expect that this system will change in the next year or two.
Since the ACA went into effect in March 2010, employers have been required to provide notices to their employees. Some of the notice requirements are as follows: grandfather status, lifetime limit notices, claims and appeals notices, summary of benefits and coverage, W-2 reporting on cost of the program, explanation of exchanges or the medical marketplace, patient protection notice (new plans), annual limits waiver, and automatic enrollment. For 2015, large employers (50 or more) will have to file either IRS Code Section 6055 or IRS Code Section 6056 statements (explained in detail below).
Code Section 6055 and Code Section 6056
The IRS published two sets of final rules on the Affordable Care Act’s (ACA) reporting requirements. Throughout 2015, employers will gather information required to report minimum essential coverage and health plan coverage offered to employees and their dependents. Beginning in 2016, for the 2015 tax year, employers report to the IRS and furnish statements to employees. The reporting forms and statements are currently being developed at the IRS.
Code Section 6055 – Insurers and sponsors of self-insured plans (regardless of size) who provide minimum essential coverage need to provide basic plan details, as well as the identity of who was covered under the plan during each month, to the IRS and those covered individuals.
Code Section 6056 – Employers who are subject to the Employer Shared Responsibility (ESR) requirements will provide basic plan information including the number of full-time employees, information about the coverage offered per month, including the lowest cost of employee-only coverage. This statement must be provided to both the IRS and each full-time employee listed on the report. Employers eligible for Code Section 4980H transition relief in 2015 (those between 50 – 99 full-time employees), will use the Section 6056 report to indicate their eligibility for such relief.
Reporting for Code Sections 6055 and 6056 will be combined under one form so that employers having to report under both sections will only need to complete one document.
Simplified Reporting Option
Generally, large employers must report employee-specific information on a monthly basis. However, the final regulations allow an employer to provide a simplified annual statement if the employer provides a “qualifying offer” to any of its full-time employees for all 12 months of the year.
What Information Is Reported
The statute calls for employers, insurers, and other reporting entities to report information including:
Most large employers will find that their best resource would be an integrated information system which will be able to combine data from payroll, HR and IT. For employers that do not have these capabilities, then the ACA reporting requirements will put an additional strain on their staff.
For more information on this topic, please contact your local UHY LLP professional or the author of this article, John DePalma.
Wednesday, April 24, 2019 | 7:30 AM – 9:30 AM EDT | The Hartford Club