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Employers should be ready to answer employee questions
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Outsourcing the processing of Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is common. But employers remain responsible for the accuracy of the form, which is cumbersome to complete, and should be knowledgeable about it when employees have questions.
To show that full-time employees were offered health care coverage compliant with the Affordable Care Act (ACA), employers with 50 or more employees must provide the form to workers by Jan. 31 and subsequently to the
Internal Revenue Service (IRS) by Feb. 28 (paper filing) or March 31 (electronic filing, which is required of employers that file 250 or more information returns). The form uses indicator codes (e.g., 1H or 1E), listed in the form instructions, to show the type of health care coverage that was offered to the employee. Form 1095-C is filed with transmittal Form 1094-C.
The IRS released final versions of Form 1095-C and Form 1094-C, along with instructions, during the first week of October.
Given the high probability of an error processing the 1095-C in-house, "most employers have outsourced this process to third-party firms specializing in this area," said Fernan Cepero, chief human resources and diversity officer at The YMCA of Greater Rochester—Association Office in Rochester, N.Y.
Greta Engle, a consultant with BB&T Insurance Services, headquartered in Frederick, Md., said most of her clients have outsourced filling out the form. Yet they still fear liability, she added.
That fear is somewhat diminished since it's possible that President Donald Trump's administration may delay the requirement, said Chatrane Birbal, senior advisor, government relations, with the Society for Human Resource Management (SHRM).
For now, the ACA is the law of the land and employers must continue to comply with its reporting requirements, said Arthur Tacchino, J.D., principal and chief innovation officer with SyncStream Solutions. "There are serious penalties for late filing or intentional disregard," he noted. Headquartered in Baton Rouge, La., SyncStream Solutions helps employers comply with complex regulations.
Employers should also be able to explain Form 1095-C to their employees. "This includes what the indicator codes mean," Tacchino said. "Employers are often asked by employees what they should do with their form, so it's a good idea for employers to prepare a document with common questions and answers."
"Perhaps the most common question from employees is whether they must file Form 1095-C with their individual tax return," said Penny Wofford, an attorney with Ogletree Deakins in Greenville, S.C. "The answer is no."
But she said employees must use the information on Form 1095-C to complete their tax returns. "The employee should, but is not required to … retain it in the employee's records to verify that the coverage information the employee filed on [a] tax return is accurate," she said.
Tacchino said the indicator codes on lines 14 and 16 in part 2 of the form are by far the most complicated component of Form 1095-C.
Employees may ask what the codes on lines 14 and 16 mean, Wofford said. The instructions on the back of the form contain a key for the codes, she noted, adding that "Employers can direct the employee to that part of the form."
"There are many varying combinations, and it's the responsibility of the employer to ensure reporting is accurate for each employee," Tacchino said. "A big part of the accuracy is contingent on how well the employer tracked key payroll and benefits data throughout the year, as this information will dictate the appropriate indicator codes to apply on the form."
Line 14 has 10 indicator codes that an employer will select from to say whether it offered coverage to the employee and, if so, what type of coverage was offered for each month of the calendar year, Wofford noted. Line 16 has eight codes for employers to use to explain why they did not offer coverage—for instance, if a worker was unemployed that month. The codes for line 16 can also indicate that the employee enrolled in coverage and, if not, whether the employer offered affordable coverage to that employee for each month of the calendar year.
"Sometimes more than one code will apply, and a priority system outlined in the instructions directs the employer as to which code to use over another," she said.
Most companies use just two codes on line 14, according to Adam Miller, HR compliance manager for Passport Software Inc., headquartered in Chicago. 1H means coverage was not offered, he said, and 1E indicates qualifying and affordable coverage was available to the employee and that qualifying coverage was also available to the employee's spouse and all dependents. The family portion does not need to meet the affordability standards, he noted.
Miller said some people get tripped up by line 15, where the IRS seeks to find out the employee's share of the least expensive employee-only qualifying plan. The IRS is seeking what the employee could have paid, not the actual amount the worker is paying for a better or family-inclusive plan, he said.
Most of the confusion on line 16 stems from employees who waive coverage, Miller said.
Wofford said there is no specific code to enter on line 16 to indicate that an employee waived coverage. She added, "We really would like a code to clearly say, 'Hey, the employee waived coverage, so don't assess us a penalty!' "
Codes typically used here, according to Miller, are 2F, 2G or 2H, depending on which method is used to estimate an employee's income for the affordability calculation: W-2 wages, the federal poverty level or the rate of pay, respectively.
Miller recommends distributing draft versions to employees as early as possible. "If you discover any mistakes in the data, even a name change or incorrect Social Security number, it is much easier to correct it before you file the official copies with the IRS," he said.
The form can be unwieldly for those with plans not based on the calendar year.
"Our plan runs from Sept. 1 to Aug. 31," noted Crystal Frey, vice president, human resources, at Continental Realty Corp. in Baltimore. In this case, the service provider needs to pick up the records for the prior plan year to report a full calendar year. "Our service provider hasn't resolved this successfully," she said.
This results in many participants appearing to have coverage only from Sept. 1 through the end of the year, even when they had coverage all year. The company has to manually edit most of the records. "Thank goodness we are permitted editing rights. Otherwise, virtually every 1095-C would be incorrect," Frey said. But she noted that the manual editing is "a time-consuming process."
Gretchen Van Vlymen, head of HR with StratEx, an HR consulting firm based in Chicago, noted that part 3 of the form does not have to be completed, except for self-insured plans.
[SHRM members-only HR Q&A: How do patient-centered outcome fees affect self-insured health plans?]
Large employers that sponsor their own health care plans—self-insured plans—serve as both the insurer and the employer, Birbal explained.
The reporting requirements affect self-insured employers on a larger scale than others, she said. "For self-insured employers, ACA reporting presents a significant challenge because they will be responsible for reporting both as the insurer and the employer," she noted. "To navigate the ACA reporting requirements, some employers have contracted with health care brokers or consultants or have added staff to collect and track ACA reporting requirements."
This was the first in a three-part series of articles on the ACA. The next installment will be on rising penalties' role in the decision to pay or play. The final part of the series will examine the Cadillac tax.
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