“Piling On”: IRS Issues Instructions on ACA Reporting Requirements

On August 28, 2014, the IRS issued draft instructions on the reporting requirements for employers subject to the employer shared responsibility provisions. The draft instructions for Forms 1094-C and 1095-C are thirteen pages in length, filled with mind-numbing complexity that will cause fits for all large employers.

Employers with at least fifty full-time employees (including full-time equivalent employees) will be required to utilize IRS Forms 1094-C and 1095-C to report information to the IRS regarding offers and enrollment in health coverage. Form 1094-C must be used to report to the IRS summary information for each employer and to transmit Forms 1095-C to the IRS. Form 1095-C is used to report information about each employee.

The Form 1094-C requires an employer to certify the eligibility of full-time employees for health coverage. The instructions describe the various types of transition relief that are available to applicable large employers for 2015.   This form must be filed by the employer under penalties of perjury.

The Form 1095-C requires large employers to provide the name, address, social security number, months of coverage and the employee’s share of the lowest cost monthly premium for health coverage.

Large employers are required to file Forms 1094-C and 1095-C by February 28 following the calendar year if the employer is filing paper copies. If the employer files electronically, the forms are due by March 31. In general, employers that are filing 250 or more Forms 1095-C during the calendar year must file the returns electronically. The first returns will be due in 2016; however, the IRS is permitting employers to file voluntarily in 2015. I am not quite sure why any employer would voluntarily file in 2015.

In addition, large employers will be required to provide each full-time employee with Form 1095-C. The employer generally must mail the statement to the employee’s last known permanent address. It is also permissible to furnish the statement electronically if the employer obtains affirmative consent from the employee.

The IRS will not impose penalties under Internal Revenue Code §§ 6721 and 6722 for 2015 returns and statements filed and furnished in 2016 on employers that can show that they have made good faith efforts to comply with the information reporting requirements. This reprieve may represent the only real piece of good news that came from this most recent IRS publication.

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Indiana School Leaders and Job Creators Describe Harmful Effects of Health Care Law

Below is an announcement issued by Education & The Workforce Press:

 

FOR IMMEDIATE RELEASE
September 5, 2014
CONTACT: Press Office
(202) 226-9440

 

Indiana School Leaders and Job Creators Describe Harmful Effects of President’s Health Care Law

 

WASHINGTON, D.C. – The Subcommittee on Health, Employment, Labor, and Pensions, chaired by Rep. Phil Roe (R-TN), held a field hearing in Greenfield, Indiana to examine the health care challenges facing the state’s classrooms and workplaces. According to a local news report:Hoosier business owners and education officials aired out their concerns about the Affordable Care Act to Congress without having to go all the way to Washington D.C. … The chambers there are clearly smaller than the halls of Congress, but that’s exactly the way committee members wanted it. Several panelists were concerned about how ACA has been affecting their budgets.As witnesses made clear, the president’s health care law is undermining the success of the nation’s schools and workplaces –Schools

  • The most significant impact is on our special needs students. These students need and want consistency … It is best for our special needs students to have the same bus driver for their routes. Unfortunately, we now must split the route between two drivers. By using different drivers for the same route, our special needs students are subject to constant change which is uncomfortable for our special needs students and not in their best interests. – Mr. Danny Tanoos, Superintendent, Vigo County School Corporation, Terre Haute, IN
  • Like many community colleges our funding is very limited. It does not allow us to absorb large unfunded mandates such as any employee who reaches 30 hours being offered health insurance. We would have to pass along such increases on the backs of students by increasing tuition. As a result many of those who are at the lowest income levels trying to improve their lives would no longer be able to afford college. – Mr. Tom Snyder, President, Ivy Tech Community College of Indiana, Indianapolis, IN
  • The Patient Protection and Affordable Health Care Act (PPACA) has had and continues to have a severe and disproportionately disruptive effect on our high performing school district. We have identified three categories in which these negative effects have occurred in our school district. There is the impact on our students, the impact on our employees, and the impact on the school district itself. These intertwined and interactive effects, taken together, are serious now and appear to be increasing in their severity over time. – Mr. Michael Shafer, Chief Financial Officer, Zionsville Community Schools, Zionsville, IN

Workplaces

  • In summary, since the ACA took effect, our company and employees have seen premiums increase dramatically while deductibles and out-of-pocket costs have been raised, all during a period when the overall health of our employees has improved … From the experience of IDS, I can say that the Affordable Care Act is anything but affordable for our company and employees. – Mr. Mark DeFabis, President, Integrated Distribution Services, Plainfield, IN
  • We offer health insurance to our full time employees although not affordable by government standards … This cost to our business is roughly in the area of $2.42 to $3.23 per hour per employee depending on hours worked. To meet the proposed guidance of not to exceed 9.5% of income that cost would move into the $2.87 to $5.15 range per hour per employee! Representing an 18 to 59% raise in cost per hour per employee. Where is the AFFORDABLE in this act? – Mr. Daniel Wolfe, President, Wolfe’s Auto Auctions, Terre Haute, IN
  • The Affordable Care Act’s reporting mandates will absolutely ‘bury’ our Human Resources Department … The forms must be filed electronically for companies with over 250 employees, such as Draper. However, there is no guidance or process yet established to explain how to do this … Our HR Department’s worst fear is that the final versions will be made available on December 15, with a December 31 deadline for submission! – Mr. Nate LaMar, International Regional Manager, Draper, Inc., Spiceland, IN

Congressman Luke Messer (R-IN) noted during the hearing, “Our nation’s school children and hourly workers shouldn’t be forced to pay the price of that law.” Chairman Roe echoed the sentiment: “Our children and working families deserve better.”

To read witness testimony, opening statements, or watch an archived webcast of the hearing, visit www.edworkforce.house.gov/hearings.

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EEOC Files Lawsuit Against Employee Wellness Program

On August 20, 2014, the U.S. Equal Employment Opportunity Commission (“EEOC”) filed suit in Wisconsin federal court challenging an employee wellness program’s legality under the Americans with Disability Act (“ADA”). As noted in a press release, this lawsuit is the EEOC’s first to directly challenge a wellness program under the ADA.

Orion Energy Systems (“Orion”) implemented a wellness program that included health screenings and disability related inquiries. The ADA prohibits medical examinations and inquires unrelated to employment, unless they are voluntary. The EEOC alleges that Orion’s wellness program did not qualify as voluntary under the ADA because one employee who refused to participate was forced to bear the entire cost of her health coverage premium and was ultimately terminated. “Employers certainly may have voluntary wellness programs,” stated John Hendrickson, regional attorney for the EEOC Chicago district. “But they have to actually be voluntary. They can’t compel participation by imposing enormous penalties such as shifting 100 percent of the premium cost for health benefits on the back of the employee or by just firing the employee who chooses not to participate. Having to choose between responding to medical exams and inquiries – which are not job-related – in a wellness program, on the one hand, or being fired, on the other hand, is not choice at all.”

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Roe to Hold Indiana Field Hearing on Health Care Challenges Facing Schools and Workplaces

Below is an announcement issued by the Subcommittee on Health, Employment, Labor, and Pensions:

On Thursday, September 4, at 10:00 a.m., Subcommittee on Health, Employment, Labor, and Pensions Chairman Phil Roe (R-TN) will hold a field hearing entitled, “The Effects of the President’s Health Care Law on Indiana’s Classrooms and Workplaces.” The hearing will take place at Greenfield City Hall, 10 South State Street, Greenfield, Indiana.

Across the country, workers and employers are struggling with the consequences of the president’s health care law. For example, in response to a survey by the Federal Reserve Bank of New York, businesses generally expect health care costs to increase by 10 percent next year and a majority cited the health care law as the reason. The survey also revealed the law was leading employers to raise the number of part-time employees, lower employee compensation, and increase consumer prices.

The House Education and the Workforce Committee is examining how many of these same consequences are affecting the nation’s K-12 and higher education systems. Through testimony and the committee’s YourStory initiative, school leaders have shared stories of health care costs going up and staff work-hours being cut.

The field hearing will provide members an opportunity to learn how the health care law is affecting Indiana’s schools and workplaces. For more information about the field hearing, visit www.edworkforce.house.gov/hearings. Media interested in attending the field hearing must RSVP to Liz Hill at liz.hill@mail.house.gov.

 

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IRS Adjusts Affordability Percentage Under Employer Mandate

Beginning in 2015, the Affordable Care Act requires applicable large employers to offer affordable, minimum value health coverage to their full-time employees (and dependents) or pay a penalty. The Affordable Care Act measures affordability based on annual household income. Because employers have no way of knowing an employee’s household income, the Affordable Care Act provides three safe harbors that will allow employers to claim that their plans are “affordable.”   Employers familiar with these safe harbors are also familiar with the significance of the 9.5% number. It is this 9.5% number that the IRS, in Revenue Procedure 2014-37, recently increased to 9.56%.

Employers may use the 9.56% figure in its safe harbor calculations when setting premiums for the 2015 plan year. The three safe harbors are the Form W-2 safe harbor, the rate of pay safe harbor, and the federal poverty line safe harbor. First, if the employee contribution towards the self-only coverage does not exceed 9.56% of the employee’s wages listed in Box 1 of his/her Form W-2, then the coverage will be deemed to be affordable. Second, coverage is affordable if the employee contribution does not exceed 9.56% of the employee’s hourly rate of pay times 130, or the employee’s monthly salary. The third safe harbor provides that coverage is affordable if the employee contribution does not exceed 9.56% of the most recently published federal poverty level for a single individual.

While the change from 9.5% to 9.56% is not a massive change, it does serve as a reminder that what is deemed “affordable” may change from year to year.

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IRS Releases Draft Versions of Forms for Health Information Reporting by Employers

The IRS released final regulations on March 5, 2014, outlining the employer reporting requirements that will take effect for the 2015 taxable year. While the final regulations specified the type of information that will need to be reported, the actual reporting forms were not issued at that time. As a result many employers were taking a wait and see approach to the reporting requirements. We now have draft reporting forms. On July 24, 2014, the IRS released draft forms that employers will use to report on health coverage they offer to their employees. The forms are the primary mechanism used by the government to track and enforce the Affordable Care Act’s minimum essential coverage and shared responsibility requirements for employers. The first reports will be due in 2016.

There are two types of reporting requirements. First, is section 6055 reporting, which is to aid the IRS in enforcing the ACA individual mandate. The second type of reporting is section 6056 reporting, which applies to applicable large employers and is to aid in the enforcement of the shared responsibility penalties under the ACA. The IRS recently released draft forms may be found using the following hyperlinks: 1094-B (Transmittal of Health Coverage Information Return), 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns), 1095-B (Health Coverage), and 1095-C (Employer-Provided Health Insurance Offer and Coverage). The draft instructions relating to the forms have not been released. The IRS anticipates posting draft instructions to IRS.gov sometime in August.

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King Decision on ACA Subsidies

On July 22, 2014, two conflicting decisions on the legality of insurance subsidies provided in federally established health care exchanges were handed down. In the Halbig decision, discussed previously in this blog, the D.C. Circuit of the U.S. Court of Appeals ruled that such subsidies are not allowable on federally established exchanges. The second decision, in King v. Burwell, directly conflicted with the Halbig decision, with the Fourth Circuit of the Court of Appeals ruling that such subsidies are allowable on federally established exchanges. This case is the topic of this post.

The plaintiffs in King v. Burwell, which may be read in full here, were Virginia residents who did not wish to purchase comprehensive health insurance. Due to Virginia’s refusal to establish a state health care exchange, citizens of the state were to use the federally established exchange healthcare.gov. The plaintiffs’ opposition to the availability of insurance subsidies in federally established exchanges is linked to the individual mandate provision of the ACA. The plaintiffs argue that absent these subsidies, they would fall under the ACA’s unaffordability exemption and not be required to purchase health insurance. Due to their low income, the plaintiffs argue that the availability of these subsidies makes them subject to the individual mandate and therefore imposes an undue financial burden on them, as they will be required to either obtain insurance or pay a penalty.

The crux of the plaintiffs’ argument in King is essentially the same as that of the plaintiffs in Halbig; they believe that the language of the ACA which allows for insurance subsidies in exchanges “established by the state” prevents these subsidies from being available on federally established exchanges. However, unlike the court in Halbig, the Court found this argument unpersuasive and ruled in favor of the government’s broader interpretation of the statutory language.

The rationale behind the Fourth Circuit’s ruling is centered on the perceived ambiguity of the statutory language. The King court explains that, taken in context of the entire act, the language in question could have two reasonable interpretations. One of these interpretations is that taken by the plaintiffs, while the other is the broad interpretation presented in the IRS’ final regulation on this matter, which allows for insurance subsidies on all health care exchanges. Due to the fact that the IRS has interpretative authority, the Court explains that they are not authorized to supplant the IRS’ interpretation of the statute unless it is clearly “arbitrary, capricious, or manifestly contrary to the statute.” The Court determined that the IRS’ interpretation did not fall into any of these categories, and therefore upheld the IRS’ ruling and the legality of insurance subsidies in federally established exchanges.

This decision will be appealed, similar to the Halbig decision. Until a final decision on this issue is published (likely by the United States Supreme Court), employers should continue to proceed as if the employer penalties are applicable in states with federally facilitated exchanges.

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