The Affordable Care Act (“ACA”), sometimes referred to as “Obamacare,” is comprehensive federal legislation that includes many requirements that employers and taxpayers must understand in order to remain in compliance with the law (and avoid paying a penalty).
For many employers, the ACA’s “play-or-pay” mandate took effect Jan. 1, 2015. Questions remain about the future of the law itself. However, although congress and the U.S. Supreme Court will play a role in deciding the future of the ACA, employers must remain vigilant in complying with the “play-or-pay” mandate and other requirements of the ACA.
Section 4980H-Employer ‘Play-or-Pay’ Mandate
Section 4980H of the Internal Revenue Code (added as part of the ACA), requires “applicable large employers” with 50 or more full-time employees (this includes full-time equivalent employees) to offer health coverage to full-time employees and their children. If employers do not provide the required coverage, they must pay a penalty. Some employers that offer coverage may still incur a penalty if the coverage does not provide “minimum value” to participants or if the plan is not considered “affordable” under the law. (Employers with between 50 and 99 full-time employees have until 2016 to comply).
Under Section 4980H(a) and the IRS final rule, “applicable large employers” must offer “minimum essential coverage” to at least 95 percent (70 percent in 2015) of their full-time employees (and their children) or pay a penalty if any full-time employee receives a federal subsidy to purchase insurance through a health exchange. The 4980H (a) penalty is $2,000 for each full-time employee in excess of 30 employees, indexed to inflation.
For 2015 only, the penalty will exempt the first 80 full-time employees instead of 30.
The IRS final rule allows employers to use of one of three tools to determine whether a health plan is “affordable.” A plan will be considered to be affordable with respect to a full-time employee if any one of the measures is satisfied. Affordability is met if the employee’s required contribution for the calendar year for the employer’s lowest cost self-only coverage that provides “minimum value” during the year does not exceed 9.5 percent of:
- That employee’s Form W-2 wages from the employer for the calendar year;
- An amount equal to 130 multiplied by the employee’s hourly rate of pay as of the first day of the coverage period or the lowest hourly rate during the calendar month or 9.5 percent of the employee’s monthly salary for salaried employees; or
- The federal poverty level for a single individual.
The ACA also requires employers to provide the IRS with information about employer-sponsored health coverage. Specifically, Section 6056 of the Internal Revenue Code, as added by the ACA, requires certain large employers (subject to the play-or-pay mandate), to provide information about the type of health coverage offered to their full-time employees. These employers must also provide this information to employees. Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is used to report the information required under Section 6056 with respect to each covered employee.
Section 6055 (reporting of health insurance coverage) of the ACA requires certain self-insured employers to report to the IRS information regarding the type and period of coverage offered for the purposes of enforcing the ACA’s individual mandate. Form 1095-B is entitled “Health Coverage” and reports information required under Section 6055. , and Form 1094-B is to be used to transmit the 1095-B return to the IRS.
Reporting requirements for employers remain complex and burdensome.
Employer Reimbursement for Individual Health Policies
The IRS has published guidance for employers that do not establish health insurance plans for their own employees but choose instead to reimburse employees for premiums they pay for health insurance. Specifically, the IRS FAQ on this topic notes the following:
Under IRS Notice 2013-54, such arrangements are described as employer payment plans. An employer payment plan, as the term is used in this notice, generally does not include an arrangement under which an employee may have an after-tax amount applied toward health coverage or take that amount in cash compensation. As explained in Notice 2013-54, these employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing. Notice 2013-54 clarifies that such arrangements cannot be integrated with individual policies to satisfy the market reforms. Consequently, such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code.
On February 18, 2015, the IRS issued Notice 2015-17, which reiterates the conclusion in previous guidance addressing employer payment plans, including Notice 2013-54, that employer payment plans are group health plans that will fail to comply with the market reforms that apply to group health plans under the Affordable Care Act. Notice 2015-17 also provides transition relief from the assessment of the excise tax under § 4980D for failure to satisfy market reforms in certain circumstances.