Keep on Complying!

One would have to be in a deep sleep to avoid the barrage of “news” regarding Congressional action to repeal the Affordable Care Act (ACA). But, all of the drama does not mean that anything has changed… yet.

Health insurance brokers have been fielding calls from clients asking if they still have to file forms 1094-C and 1095-C  which are due to the IRS by March 31, 2017.

The answer is, yes!

Other brokers and accountants are being asked if individuals should complete their tax returns due in April including the information regarding health coverage.

Once again, the answer is, yes!

Complying with the provisions of the Affordable Care Act will be required until legislation has passed both houses of Congress and been signed into law. Even after President Trump takes action, it’s likely that some provisions of the new law will be phased in. As a result, compliance with provisions of the Affordable Care Act (ACA) may be part of the compliance landscape for some time to come.

IRS Missive Seeks Out Non-Filing ALEs

It seems that some employers are receiving requests from the IRS asking where their reports are! These letters appear to be one of the first efforts by the IRS to enforce the employer responsibility requirements of the ACA.

Employers who have 50 or more full-time and full-time equivalent employees are required to file Forms 1094-C and 1095-C with the IRS. Last year was the first year that employers were required to file these forms addressing coverage provided in 2015.

The letter requires a response from the employer within 30 days from the date on the letter.

Employers are directed to check a box indicating their status for 2015. Choices include:

  • An assertion that filing had already occurred
  • Acknowledgement that the employer is an ALE and that the forms are included along with the response to the IRS letter
  • Acknowledgement that the employer is an ALE and the date that the employer will file the required forms
  • An assertion that the employer was not an ALE for calendar year 2015.

The letter closes with a reminder that noncompliance with reporting requirements could result in an assessment of penalties.

Employers that have not yet filed these information returns for calendar year 2015 should do so as soon as possible, if they receive a letter or not. It would also be wise to memorialize the reason for the delay and steps taken to come into compliance so that an employer can provide these facts in any effort to claim they made a “good faith compliance” effort.

Employers should take this enforcement effort as a gentle nudge to comply with the upcoming filing deadlines for the 2016 returns. Reports are due to be filed with the IRS on the following dates:

  • February 28, 2017 for paper forms
  • March 31, 2017 for electronical filing.

 

Preparing for 2017 – Checking Status and Filing Forms

Santa may be making a list and checking it twice, but employers have to check their ALE status and prepare to file forms!

Employers of all sizes need to take stock by calculating the number of full-time and full-time equivalent employees for the year 2016. If the average meets or exceeds 50, the employer will be an applicable large employer, or ALE, for 2017.

Determination of ALE status is done on a calendar year basis. It is not done based on an employer’s health plan renewal date. Importantly, employers that don’t currently offer a health plan must make this assessment!

The end of the year also has employers assembling the information necessary to complete Forms W-2 for employees. And, effective with the New Year, employers have this one filing deadline for both employee and agency copies of this form. These are due to be distributed by January 31, 2017. More details on this filing change can be found here.

One crunch employers faced has been eased by a recent IRS delay in the filing deadline for ACA’s 1095-C forms. Notice 2016-70 provides a 30 day extension to the due date for furnishing the 1095-B and 1095-C forms to individuals. These must be provided by March 2, 2017 rather than January 31, 2017.

This delay is particularly helpful for employers who use the W-2 safe harbor to determine whether health coverage was affordable for employees. Without a delay, employers would have to gather the wage data for the Form W-2 and apply that information to the 1095-C reporting regarding the safe harbor so that the two forms – W-2 and 1095-C could be issued to meet the January 31 deadline.

 

IRS Notice Delays ACA Employer Reporting to Individuals

In a surprise pre-Thanksgiving Day notice, the IRS has given employers some breathing space to complete and provide ACA’s 1095-C forms to employees. Notice 2016-70 provides the following:

It extends the “good faith compliance” transition relief from penalties when there is a good-faith effort to comply with information reporting requirements under sections 6055 and 6056

  • It provides an automatic extension of 30 days for the due date to provide forms 1095-B and 1095-C, but only for providing forms to individuals
  • Due dates for reporting to the IRS are not extended
  • It reminds taxpayers that they do not need to have their forms 1095-B and 1095-C to complete their tax return. They can obtain needed information from other sources.

Employers who had already filed for a 30 day extension to provide notices to employees will not receive a response from the IRS due to this automatic extension.

The notice also states that the good-faith compliance recognition applies only to incorrect or incomplete information. It does not apply for a failure to file a statement or return or a failure to furnish statements on a timely basis.

Marketplace Appeals — The Results

At the risk of sounding like Nick Cannon on the television show  America’s Got Talent when they’re announcing performers advancing to the next round of competition, employers are beginning to see the results of appeals that they’ve filed when employees receive subsidies in the marketplace. Employers are finding some of these appeal decisions perplexing, especially when an appeal is denied. And, some employers fear that penalties will follow as a result of the lost appeal.

First, and of most importance, the marketplace appeal does not determine if an employer has to pay an employer shared responsibility penalty to the IRS. This point is made clear on both the appeals form and on the webpage that addresses employer appeals.

Second, an appeal that is denied may be due to the particular facts and circumstances of the employee and his/her family. In particular, even though an employer may have offered coverage that meets the minimum value and affordability safe harbors, the measure of affordability at the marketplace is based on household income. Household income may be quite different from an employee’s W-2 income. The marketplace’s decision regarding an employer’s appeal will not reveal personal and income information of the employee subject to the appeal.

The appeal decision letter explains that the marketplace will not consider whether an employee is a full-time employee or whether the employer employs 50 or more full-time employees and is subject to the employer shared responsibility payments. The reasoning cited in the letter is that “neither of these issues affect the employee’s eligibility for advance payments of the premium tax credit and cost-sharing reductions (if applicable).

Another employer found that the information which the employer sent to support their appeal did not go far enough. The employer submitted proof that the employer had offered coverage to the employee that met minimum value and was affordable. The hearing officer wanted proof of this offer in the form of the employee’s response to the offer. Employers that have been reluctant to require that employees sign waivers when they decline coverage may decide to require signed waivers or take other steps that can buttress the fact that an offer was made and rejected.

A review of several decision letters finds that decisions often cite “insufficient information” as the basis for the decision to reject the appeal. Employers may want to develop a checklist of materials that they will provide to ensure that appeals are not lost for want of more information.

Still other employers have received a letter while an appeal is under review that asks for more information to support the appeal. The types of information requested and documents that may contain the requisite information are shown below in a table copied from a letter asking for more information.

appeal-documents

While marketplace appeal decisions are not triggers for IRS penalties, a successful marketplace appeal may be helpful if the IRS does attempt to penalize an employer. The successful appeal would be another piece of information for an employer to include in the IRS appeal’s process. And, whether an appeal is successful at the marketplace level, or not, an employer will have already collected information that would be required to appeal an IRS penalty determination should one be received.

 

 

 

 

Cash-in-Lieu Options Face Compliance Hurdles in 2017

IRS rules further regulating cash-in-lieu (opt-out) programs are effective the first day of the plan year beginning on or after January 1, 2017. The rules provide for two different types of cash-in-lieu or opt-out arrangements: conditional and unconditional.

The easiest opt-out plan administratively is an “unconditional opt-out” arrangement. An unconditional opt-out doesn’t have strings such as requiring proof of other coverage for an employee waiving coverage. As such, the IRS guidance requires that the opt-out payment be calculated as a part of the employer’s affordability calculation for employer shared responsibility purposes.

The IRS described this unconditional opt-out arrangement in Notice 2015-87 where it said:

If an employer offers to an employee an amount that cannot be used to pay for coverage under the employer’s health plan and is available only if the employee declines coverage (which includes waiving coverage in which the employee would otherwise be enrolled) under the employer’s health plan (an opt-out payment), this choice between cash and coverage presented by the offer of an opt-out payment is analogous to the cash-or-coverage choice presented by the option to pay for coverage via salary reduction. In both cases, the employee may purchase the health plan coverage only at the price of forgoing a specified amount of cash compensation that the employee would otherwise receive – salary, in the case of a salary reduction, or other compensation, in the case of the opt-out payment.

In short, the amount available as an opt-out payment is added to the employee’s premium contribution amount when an employer is calculating affordability for the ACA’s employer shared responsibility requirements. Notice 2015-87 provides this example:

If an employer offers employees group health coverage through a Section  125 cafeteria plan, requiring employees who elect self-only coverage to contribute $200 per month toward the cost of that coverage, and offers an additional $100 per month in taxable wages to each employee who declines the coverage…the employee contribution for the group health plan effectively would be $300 ($200 + $100) per month, because an employee electing coverage under the health plan must forgo $100 per month in compensation in addition to the $200 per month in salary reduction.

To read Notice 2015-87 click here.

Importantly, this calculation of affordability applies to all employees whether they elect the opt-out arrangement or not.

 A conditional opt-out is excluded from the affordability calculation but, it is more administratively burdensome. The regulations deem a conditional opt-out arrangement to be an “eligible opt-out arrangement.”

The proposed regulations define an “eligible opt-out arrangement” as an arrangement under which the employee’s right to receive the opt-out payment is conditioned on:

(1) The employee declining to enroll in the employer-sponsored coverage and

(2) The employee providing reasonable evidence that the employee and all other individuals for whom the employee reasonably expects to claim a personal exemption deduction for the taxable year or years that begin or end in or with the employer’s plan year to which the opt-out arrangement applies (employee’s expected tax family) have or will have minimum essential coverage (other than coverage in the individual market, whether or not obtained through the Marketplace) during the period of coverage to which the opt-out arrangement applies.

Employers must obtain an employee’s attestation that other coverage is in place before the coverage period begins. If an employer “knows or has reason to know” that an employee or family member isn’t covered, then the employee cannot make an opt-out payment.

An employer is not required to ascertain that any alternative coverage is ongoing during the plan year. But, an employee must provide an attestation or evidence of coverage every plan year.

There are a number of other nuances to the opt-out rules including transition relief for collectively bargained plans. The text of the rules can be found here.

Employers may also wish to keep an eye on the courts. A recent court case found that opt-out payments must be included for overtime pay purposes under the FLSA (Fair Labor Standards Act). The court case is binding only in the state of: Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, N. Mariana Islands, Oregon and Washington. Other courts in other jurisdictions may make similar judgments.

Employers who have adopted cash-in-lieu programs or who are considering such programs would be wise to seek legal guidance in advance of implementing or renewing these options. Employers who have been offering these types of arrangements on an informal basis should also seek legal advice.

 

 

Telemedicine — A Growing Benefit Offer

Employers and insurers are increasingly turning to telemedicine programs to save employees money and increase productivity. With a doctor visit only a phone call away, employees don’t have to take time off the job to sit in a doctor’s office when a remote visit will do the trick.

Employers who wish to learn more about telemedicine from a medical practice perspective may find that the FAQs on the American Telemedicine Association website are helpful. The FAQ page is here.

Health insurers have been slow to adopt telemedicine programs. That appears to be changing. But, as a result, employers have adopted stand-alone telemedicine programs. As a stand alone program that is not integrated into the overall health plan, compliance issues may need to be considered. This is especially true if the employer offer a high deductible health plan (HDHP) that is health savings account (HSA) compatible.

There is an ongoing debate in the benefits arena regarding whether a telemedicine program meets the definition of a “group health plan” for ERISA, HIPAA and IRS purposes.  Since most telemedicine programs provide medical care, a conservative interpretation would define these plans as meeting the “group health plan” definition.

If one accepts that the telemedicine plan is a “group health plan” then the plan is subject to COBRA and provisions of the ACA. This exposes the plan to the market reforms such as covering dependents to age 26, and preventive services in-network without cost to the patient. Therefore, a plan should be structured to provide these benefits.

Some telemedicine providers or benefits consultants have argued that these plans  should be characterized as excepted benefits, an employee assistance plan (EAP) or a non-insurance based program. As such, these plans would not be subject to ACA, ERISA or other compliance requirements. Unless an employer has specific legal guidance in this regard, employers should adopt a more conservative approach by treating these programs as “group health plans.”

 One of the bigger concerns regarding telemedicine plans is whether and how to integrate these plans with high deductible health plans (HDHPs) coupled with HSAs. It’s a bigger concern because many employers have offered telemedicine programs to help address the employee exposure to larger and larger deductibles. The idea is that employees have a benefit for the more common medical expenses without having to meet the deductible.

That’s also where the problem with HSAs arises. IRS publication 969 establishes the rules for HSAs. To be eligible and qualify for an HSA you must meet the following requirements:

  • You must be covered under a high deductible health plan (HDHP), on the first day of the month.
  • You have no other health coverage except what is permitted under “Other health coverage”
  • You are not enrolled in Medicare
  • You cannot be claimed as a dependent on someone else’s 2015 tax return.

Publication 969 can be found here.

A telemedicine plan’s benefits are often structured to provide health care without regard to whether or not someone has met their HDHP deductible. If this is the case, there is a strong argument that a person with a telemedicine plan does not qualify for an HSA.

 A plan could be structured so that the beneficiary pays the “fair market value” as a fee whenever a service is rendered. In this type of arrangement an employer could offer the coverage and likely pay for it without disqualifying someone from an HSA. But, paying a fee for each service and coordinating this with a beneficiary’s deductible so there is a benefit of value is difficult, if not impossible.

It is clear that some of the services that can be provided through a telemedicine program can be considered preventive services. However, limiting a plan to only preventive services would make the telemedicine program far less appealing.

Employers could also consider offering telemedicine as a voluntary benefit. Voluntary benefits are not governed by ACA’s myriad rules. To avoid complications and ERISA compliance concerns, employers would have to follow the safe harbor for voluntary plans.

A plan is voluntary and usually not an ERISA plan if:

  • The employer doesn’t contribute to the cost of the plan
  • Participation is voluntary
  • The employer’s involvement in limited and the employer does not “endorse” the plan
  • The employer isn’t compensated for collecting and remitting premiums.

With more and more employers offering telemedicine plans, the questions regarding HSA eligibility, ERISA, HIPAA and other compliance concerns related to employee benefits will not go away. An employer is wise to avoid making assertions regarding taxes or other issues unless the employer has obtained legal or tax advice. And, the employer should ask that the telemedicine provider provide sufficient information to ensure that an employer’s in compliance with ERISA, HIPAA, COBRA and any other relevant laws.

 

IRS Publishes 2016 Draft Forms for ACA Reporting

With the first ACA reporting deadlines for employers in the rearview mirror, the IRS has released draft forms for 2016. These drafts, if finalized, will be used when employers file in 2017.

The deadlines for reporting of 2016 health coverage are expected to return to the original dates:

  • Deadline to distribute forms to employees and covered individuals will be January 31, 2017
  • Deadline to file paper forms with the IRS will be February 28, 2017
  • Deadline to file electronically with the IRS will be March, 31, 2017.

The draft forms offer few changes from the 2015 forms. Of note, the line 14 code series reflects wording changes in a few codes and new codes 1J and 1K. These new codes discuss conditional offers of coverage to spouses.

Also, the “Plan Start Month” box on Form 1095-C will continue to be optional for 2016.

Draft instructions for employers to complete the forms have not been issued at this time.

Filing for 2016 will reflect several differences that we will expect to see reflected in the instructions to complete the forms. Chief among these is that employers will be required to offer minimum essential coverage to at least 95% of full-time and full-time equivalent employees to avoid the A “no offer” penalty. Transition relief was available for the 2015 coverage year that required an offer to 70% of employees to meet the requirement to offer coverage.

Here are the links to review the draft forms:

Form 1094-C  —  https://www.irs.gov/pub/irs-dft/f1094c–dft.pdf

Form 1095-C —  https://www.irs.gov/pub/irs-dft/f1095c–dft.pdf.

Early releases of all draft forms are at www.IRS.gov/draftforms.

 

 

Correcting Employer Reporting Errors Needed to Meet Good Faith Compliance Standard

As employers were struggling to complete Forms 1095-C to get them in their employees’ hands by March 31, they had the small comfort that the IRS had announced that employers needed to meet a “good faith compliance” standard to avoid penalties. The expectation was that employers would do their best to comply with this new obligation and the steep learning curve accompanying the obligation.

The IRS is now providing more details of what may – or may not – meet the “good faith compliance” standard. In a new video on correcting errors, an IRS spokesman notes that:

“If a filer transmits a batch of returns with no health coverage information but just names and addresses, then the good-faith relief would not be available for the failure to file accurate and complete returns.”

The video titled Affordable Care Act Information Returns Corrections Process can be found here. It provides a detailed review of the corrections process for both paper and electronic returns.

The video notes that there are three (3) ways that errors can be identified:

  1. By the IRS as an error message reported by the IRS as a part of the information return submission process
  2. By the employer as a result of internal review
  3. By the employee who reports an error to the employer.

Employers should take the time between now and the deadline for filing with the IRS to review their records. It is easier to correct errors before returns have been filed with the IRS. Paper filing reporting is due at the end of May. Those filing 250 or more returns must file electronically with a due date of June 30, 2016.

Once returns have been filed with the IRS, the IRS will review the returns to validate whether the information was accurate and complete. Filers will be advised regarding errors or missing information.

The types of errors and steps needed to correct them are detailed in the instructions for the Forms 1094-C and 1095-C. Among the more common errors are:

  • Mismatches between names and social security numbers
  • Safe harbor or relief codes
  • Premium amounts.

When correcting a return, the employer will need to refile the correction along with the information that was on the original form. It is unacceptable to file the return showing only the corrected information. In essence, the corrected return will totally replace the one previously filed. It’s also important to note that a corrected return must also be provided to the employee.

In the case of an error in the social security number, employers cannot simply default to the date of birth. A filer may have to prove to the IRS that they followed the “TIN solicitation process.” This process requires:

  • The initial solicitation is made at an individual´s first enrollment or, if already enrolled on September 17, 2015, the next open season
  • The second solicitation is a reasonable time thereafter
  • And the third solicitation is made by December 31st of the year following the initial solicitation.

Employers should not disregard any error notices from the IRS. Failure to make corrections – or to make them timely – can result in the assessment of sizable penalties.

 

Open Up the Silos for Optimum Compliance

With implementation of the ACA, many brokers and employers have had a laser focus on understanding the requirements necessary to comply with the law. And, rightly so! As such, employers have adopted lookback measurement periods, identified variable hour employees, not to mention a myriad of terms and constructs.

 Employers who have filed their 1094-C and 1095-C forms with the IRS are now receiving error codes as a result of their filings. Here’s what one employer reported as an IRS error message:

Filing accepted notice of ACA reporting with error: AIRTN name/SS did not match IRS database.

This “ IRS-speak” meant that there was no match in the IRS database for the social security number that the employer used for an employee. As a result, the employer must correct the record or somehow take action to satisfy the error message.

In this specific example, as a first step, the employer should investigate whether there was a transposed number or some other typographical-type of error in reporting the information. Then, the employer can take the necessary steps to address the reporting error.

 The next step that employers may not take – but should – can occur if the employer treats ACA compliance separate from other HR functions – as if ACA compliance was in its own “silo.” That step is to consider other uses of the information outside of the “ACA silo.”

In the case of social security numbers, a review of whether the W-2 was accurate or whether the I-9 form was accurate would be advised. Reviewing and correcting this social security number must be done within the restrictions employers face regarding documentation of this kind.

Actions could include instructing the employee to contact the Social Security Administration to correct the number error. Correcting the error throughout the employer’s entire environment may help avoid other errors in information that rely on this number or negative findings should the record by reviewed as a part of another audit or investigation.

The “ACA silo” effect is also seen with the definition and identification of variable hour employees. As a recap, a variable hour employee as defined in Notice 2012-58 is:

“An employee is a variable hour employee if, based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.”

If employers are considering employees to be variable hour employees, then this status should be reflected in job descriptions, employment applications, employee handbooks and Summary Plan Descriptions – any where that employment or eligibility is addressed.

The list of agencies enforcing the ACA covers the gamut of employer-facing agencies and includes IRS, HHS, DOL, CMS and EEOC, to “alphabetically name” a few. Notably, the DOL and the IRS have a formal agreement to share information.

In preparation for the audits that will surely arise out of the ACA and the newly completed reporting, employers can expect that other aspects of compliance will surely surface. By breaking down internal barriers – getting rid of the silos – any audits or compliance reviews may be more readily dispatched.