Coding Helps with Reporting Offers of Health Insurance Coverage

By Allen Smith Jun 9, 2015
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The Affordable Care Act requires large employers—defined as having at least 50 employees—to file information returns with the IRS and to provide statements to employees about the employers’ health insurance.

“There is no real magic formula to simplify the process” of reporting offers of health insurance coverage, according to Richard Asensio, vice president of compliance at Burnham Benefits Insurance Services in Irvine, Calif. But certain coding can help.

“The concept for preparing Form 1094-C (transmittal form) and Form 1095-C (employee statement evidencing offer of coverage) is similar to that of preparing Form W-3 and W-2 that many benefits and payroll employees are already familiar with,” he remarked.

“Form 1095-C must be completed for each full-time employee, specifically lines 14-16 in Section II,” Asensio added. “Note that if the large employer sponsors a self-funded plan, to satisfy the reporting and disclosure requirements under Code Section 6055, it will also need to capture by month in Section III, whether or not the employee and their dependents were actually enrolled in the plan, as well as include nonemployees such as retirees and COBRA beneficiaries, and part-time employees who are eligible for and actually enrolled in the employer’s plan. Thus, for a self-funded employer, Form 1095-Cs will also need to be prepared and filed for its nonfull-time population, if they are actually covered” by the plan.

Asensio explained that the initial steps for an employer in completing the Form 1095-C should be to assess all of its full-time employee population and classify individuals into various categories, such as those:

  • Employed and offered coverage throughout the calendar year.
  • Employed and not offered coverage throughout the year.
  • Hired during the year.
  • Terminated during the year.

Also, classify those:

  • Who gained full-time status during the year.
  • Who lost full-time status during the year.

“The reason for this is that in most instances, the preparation of the Form 1095-C for employees within each of these categories should be similar,” Asensio explained. “This will make it easier to complete the forms.”

Indicator Codes

For line 14 on Form 1095-C, “large employers who also offer coverage to spouses and dependents should consider using the following indicator codes: 1E for the months in which coverage was offered to the employee; or 1H for the months [the employee] was not offered coverage—for example, if the employee was hired or terminated, or otherwise not eligible for one or more months during the year,” Asensio noted.

For line 15, “The amount to be completed for this line item is generally constant throughout the plan year. Thus, large employers with a calendar-year plan most likely could complete this line item by indicating the ‘employee-only’ cost for the lowest-cost plan option in the ‘all 12 months’ box. “Noncalendar-year plans most likely will have two amounts to input, and thus, must complete this line item for each month in which coverage was offered,” he added.

For line 16, “Indicator codes 2A, 2C and 2D are the codes that will apply to most large employers, although other codes could also apply,” Asensio said. “For employees actually enrolled in an employer plan, indicator code ‘2C’ must be used for those months the employee was enrolled. Code ‘2A’ would be used for the month(s) in which a new hire or terminated employee was not employed by the employer. … And for months in which the employee is in a waiting period or initial measurement period, use ‘2D.’ For a terminated employee whose coverage terminates prior to the end of the month, employers would use code ‘2B’ for that particular month.

Alternative Methods of Reporting

In its May 2015 Questions and Answers on Reporting of Offers of Health Insurance Coverage by Employers (Section 6056), the IRS notes that there are alternative methods of reporting:

  • Reporting based on certification of qualifying offers.
  • Option to report without separate identification of full-time employees if certain conditions related to offers of coverage are satisfied (98 percent offers).

If a large employer has made a qualifying offer for all 12 months of the year to one or more full-time employees, the employer may use an alternate reporting method for employees. A “qualifying offer” satisfies the qualifying criteria:

  • An offer of minimum essential coverage that provides minimum value.
  • The employee cost for employee-only coverage for each month does not exceed 9.5 percent of the mainland single federal poverty line divided by 12.
  • An offer of minimum essential coverage is also made to the employee’s spouse and dependents.

A simplified statement may be made to the employee under the certification of qualifying offers, rather than furnishing a copy of Form 1095-C as filed with the IRS. “In general, however, the alternative statement is not available for an employer that sponsors a self-insured plan,” the IRS notes.

Simplified reporting procedures also may be available for a large employer that has, throughout the calendar year, offered affordable health coverage providing minimum value to at least 98 percent of its employees for whom it is filing a Form 1095-C.

“Employers who take a more paternalistic approach with their employees may find developing a substitute form easier for an employee to understand than using the standard Form 1095-C, and thus be more user-friendly from the employee’s perspective,” Asensio stated. “This may also be advisable if the employer has a workforce with a large number of employees who are not native English speakers.”

But in most situations, a substitute form “should not be necessary, and using the Form 1095-C should suffice,” Asensio said, as a substitute form “must also contain the same information as that which must be included on the Form 1095-C anyway.”

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

Related Article:

Guidance Addresses ACA Reporting Requirements, SHRM Online Benefits, May 2015

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