Earlier this summer, the Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS) made several important changes to the Affordable Care Act (ACA) employer mandate and reporting.
As many readers are aware by now, applicable large employers, generally those with more than 50 full-time and full-time equivalent employees in the prior year, (more detail in our prior articles here) are subject to the ACA employer mandate. The ACA employer mandate requires those employers to offer full-time employees and their eligible dependents minimum essential coverage that is affordable (see details regarding 2021 affordability requirements in our prior article here) and meets the minimum value or pay an employer mandate penalty if a full-time employee receives subsidized individual coverage from an ACA Exchange/Marketplace.
IRS updated 2020 ACA reporting forms
An applicable large employer is required to report to the IRS on the coverage they offer on Forms 1094-C and 1095-C. This reporting is done for each full-time employee. It includes information about whether coverage was offered to the employee and, if so, whether the coverage is affordable and provides minimum value.
The IRS has released its draft 2020 Form 1094-C and 1095-C and Instructions for employer’s 2020 reporting in early 2021. There are no changes to the Form 1094-C from the prior year. However, there are a few noteworthy changes to the draft 1095-C.
In Part II of the 1095-C, the IRS proposes that employers report the age of the employee at the start of the year. The other changes the IRS made to the draft 1095-C only affect employers who offered an individual coverage HRA (ICHRA) in 2020, under an option made available by final rules issued by the U.S. Departments of Treasury, Labor, and HHS. As discussed here, this final rule went into effect on August 19, 2019 and became applicable to plans starting in January 2020.
Specifically, there are eight proposed new series 1 codes (1L through 1S), which, in addition to the employee, describes whether the ICHRA was also offered to the dependents or the spouse and dependents. The proposed code will also describe to the IRS whether the employer used the employee’s primary residence or primary employment site to determine affordability. In addition, Line 17 of Part II of the draft 1095-C would require employers to provide monthly Zip Code information used to determine affordability (either the employee’s primary residence or primary employment site).
Note: Employers with operations in California, New Jersey, Rhode Island, Vermont, and the District of Columbia, which now have or will soon have, Individual Mandates in place requiring employers to report their ACA information on a state level. (Massachusetts also has an individual mandate, but reporting is done by insurance carriers.) A full discussion of these varying obligations goes beyond the scope of this article, but in many cases, states allow the use of properly completed Forms 1095-C to satisfy the reporting requirement. Employers should work with the reporting vendors to ensure state-based reporting is also being addressed.
IRS confirms 2021 ACA employer mandate penalties
As reported here, each year, the U.S. Department of Health and Human Services (“HHS”) issues a “Notice of Benefit and Payment Parameters” under the Affordable Care Act (“ACA”). This annual rule announcement is sometimes called the “Payment Notice.” The latest version is effective 2021. The Payment Notice includes a premium adjustment percentage which the IRS uses to calculate the increases in the ACA employer mandate penalties.
The IRS recently issued Q&As updated the 2021 indexed amounts for the ACA applicable large employer shared responsibility provision which confirmed the calculations in our prior article here. Specifically, Q&A #55 lists the 2021 indexed annual ACA employer mandate amounts for Section 4980H(a) and (b) penalties as follows:
An applicable large employer that fails to offer minimum essential coverage to 95% of full-time employees (Section 4980H(a) penalty): 2021 penalty is $2,700 per full-time employee if only one full-time employee receives subsidized coverage through the Exchange or Marketplace, a 5.1% increase from the $2,570 amount for 2020.
An applicable large employer that fails to offer affordable or minimum value coverage (Section 4980H(b) penalty): 2021 penalty is $4,060 per full-time employee who receives subsidized coverage through the Exchange or Marketplace, a 5.2% increase from the $3,860 amount for 2020.
Employers now have the draft 1094-C and 1095-C reporting forms to begin to anticipate the information needed to prepare for 2020 ACA reporting. It is advisable to begin early working with payroll, HRIS or ACA reporting providers to understand what format information will need to be conveyed so that they can prepare the 2020 reporting for the group health plan in a timely manner. However, final preparations will need to wait for the final forms. To the extent an ICHRA was offered to employees in 2020, be mindful of the new Line 14 codes and the Line 17 Zip code requirements.
In preparing a pay or pay analysis for the 2021 renewal, begin to use the updated Section 4980H(a) and (b) penalties. Remember when setting premium contributions for a 2021 renewal, to use the newly set affordability percentage to calculate premium contributions. If offering an ICHRA, be sure to determine affordability based on primary residence or primary work location.