Clarification on ACA Reporting: Reporting on COBRA ...

1 6/23/15 | 2015-07. Clarification on ACA Reporting : Reporting on COBRA . Participants, Mid-Month Hires and Terminations, and More The Internal Revenue Service (IRS) recently issued additional FAQ guidance on ACA Reporting , including how to properly code certain employees and plan participants, and also issued draft guidance on the electronic filings of ACA returns. While this guidance will largely impact third party vendors that provide ACA Reporting services, employers that plan to do their own Reporting should take special note of this latest guidance. Employers that intend to outsource Reporting to third party vendors should likewise review this recent guidance to understand how their operations and coverage offerings will impact their ACA Reporting . An employer that outsources ACA Reporting remains liable for the content of their ACA. reports so employers should be aware of their obligations and cross reference that knowledge with their chosen vendor's system.

2 An overview of the recent guidance is set forth below. Background The ACA has two Reporting requirements that impact employers sponsoring a group health plan: Minimum essential coverage (MEC) Reporting under Code section 6055 that helps the IRS. enforce the individual mandate; and Applicable large employer (ALE) Reporting under Code section 6056 that helps the IRS enforce the large employer mandate, commonly referred to as the Pay or Play mandate, and administer the advanced premium tax credit. The IRS has released two sets of forms to satisfy these Reporting obligations. Providers of minimum essential coverage, most often insurance carriers, will use Forms 1094-B and 1095-B to accomplish MEC. Reporting . Any small employers (fewer than 50 full-time employee equivalents) that sponsor a self-funded plan will also use Forms 1094-B and 1095-B to report MEC for individuals enrolled on their plan.

3 Employers that are ALEs will use Forms 1094-C and 1095-C to do ALE Reporting . ALEs that sponsor self- funded plans also have MEC Reporting obligations, which will be done jointly on Form 1095-C. Both requirements are effective for coverage provided on or after January 1, 2015. The first information returns must be filed with the IRS and the employee statements provided in early 2016. For additional information on the Reporting requirements, please see our Alerts 2014-05 and 2014-14. New FAQ Guidance on Employer Reporting The IRS recently updated FAQ guidance on ACA employer Reporting , making minor changes to the FAQs on MEC Reporting , and more significant changes to the FAQs on ALE Reporting , including an additional FAQ document specifically addressing Forms 1094-C and 1095-C. This Alert focuses on the ALE. Reporting developments. Disclaimer: This document is designed to provide general information and guidance but has not been customized for any client's particular situation.

4 Alliant Insurance Services does not provide legal advice or legal opinions. If a legal opinion is needed, please seek the services of your own legal advisor or ask Alliant Insurances Services for a referral. This document is provided on an "as is" basis without any warranty of any kind. Alliant Insurance Services disclaims any liability for any loss or damage from reliance on this document. This document does not create an attorney-client relationship nor does it constitute attorney advertising. 6/23/15 | 2015-07. The new guidance notes as follows with respect to the basics of Reporting : Employers sponsoring self-funded plans that want to use the Qualifying Offer alternative Reporting method cannot provide employees with a simplified statement. They must provide employees enrolled in their self-funded plan with the Form 1095-C. This Reporting method is not an option for the vast majority of employers so this development is not likely to affect the decision about which Reporting method to use.

5 For those employers with self-funded plans that were considering using this method, this development may make it less attractive. Form 1095-C may be delivered in any manner permitted for delivery of a Form W-2, including hand delivery. Electronic delivery is also permissible if very specific requirements are met. An employer is not, however, required to provide a Form 1095-C within 30 days of request if the employee terminates employment and requests the statement. The new guidance on completing Forms 1094-C and 1095-C provide as follows: Newly Hired and Terminated Employees For the first month of employment, the ALE member should report on Form 1095-C, Part II, Line 14 that the employee was not offered coverage for that first month, unless coverage was offered for every day that month. For example, if an employee was hired the first of the month and offered coverage immediately, the ALE member would report that as an offer of coverage.

6 In all other circumstances, the ALE member would report no offer of coverage for that month on Form 1095-C, Part II (Indicator Code 1H). Alternatively, self-funded plans completing Part III of Form 1095-C, the MEC portion of the Form, will note an employee (and dependents) has coverage for a certain month if they have coverage for any day during the first month of hire. This Reporting reflects that for purposes of the individual mandate, an individual is deemed to have coverage for a month if they are covered for at least one day of the month; whereas for purposes of the employer Pay or Play mandate, an employer is not deemed to have offered coverage for a month unless coverage is offered for all days of the month. (A copy of the 1095-C is inserted at the end of this Alert for reference.). Alliant Insight: Most plans enroll employees at the beginning of the month so coverage will be reported consistently on all parts of Form 1095-C.

7 If an employee terminates employment mid-month and the offer of coverage expires with that mid-month termination, the ALE member must report no offer of coverage (Indicator Code 1H). If the offer of coverage would have continued if the employee had not terminated employment during the month, the ALE member would be eligible for relief from Pay or Play penalties. The Disclaimer: This document is designed to provide general information and guidance but has not been customized for any client's particular situation. Alliant Insurance Services does not provide legal advice or legal opinions. If a legal opinion is needed, please seek the services of your own legal advisor or ask Alliant Insurances Services for a referral. This document is provided on an "as is" basis without any warranty of any kind. Alliant Insurance Services disclaims any liability for any loss or damage from reliance on this document.

8 This document does not create an attorney-client relationship nor does it constitute attorney advertising. 6/23/15 | 2015-07. ALE member would note that relief by entering Indicator Code 2B on Line 16, which is the code for denoting the individual is not a full-time employee for that month. Alliant Insight: In order to avoid Reporting a no offer of coverage for the month an individual terminates employment, coverage should be extended through the month in which the individual terminates employment. This policy also protects the ALE member from penalties associated with adult dependents who must be offered coverage through the end of the month in which they turn 26. Reporting COBRA Coverage How an ALE member reports COBRA coverage will depend on whether the individual enrolls in the COBRA coverage. Moreover, coverage is reported differently for individuals who are offered COBRA as a result of a termination of employment and individuals offered COBRA after a reduction in hours.

9 Where a former employee does not enroll in COBRA coverage, an ALE reports no offer of coverage beginning with the month in which the individual terminates employment and the remainder of the year on Form 1095-C, Part II. The employer will not be assessed penalties for those months, however, because they will code the former employee as not a full-time employee in the month he terminated employment (Code 2B), and will then code the individual as not employed during the remainder of the calendar year. This approach to the coding creates some additional complexities in Reporting offers of COBRA coverage. Where a former employee does enroll in COBRA coverage, the ALE member would indicate an offer of coverage was made for all the months the employee was covered under the active plan, and for all the months in which the employee was enrolled in COBRA coverage, using the same indicator code for all those months.

10 The cost of coverage reported would change from the lowest cost employee-only premium to the COBRA single premium the month the individual enrolls in COBRA . For an ongoing employee who is offered COBRA as a result of a reduction in hours, the ALE. member will report on Form 1095-C, Part II, an offer of coverage for all months the individual was offered active coverage and for all months in which the individual was offered COBRA coverage, regardless of whether that COBRA coverage was elected. The ALE member will report the cost of coverage as the lowest cost employee-only premium for the months the individual was covered under the active plan, and the COBRA single premium for the months COBRA was offered. The ALE member will use different indicator codes depending which how the ALE member determines full-time status, look-back measurement method or monthly measurement method.