IRS Proposed Rules Address Health Insurance Information Reporting for Employers and Insurers

Practical Law Legal Update 5-540-2706 (Approx. 9 pages)

IRS Proposed Rules Address Health Insurance Information Reporting for Employers and Insurers

by Practical Law Employee Benefits & Executive Compensation

Reporting Minimum Essential Coverage Information (Section 6055)

IRC Section 6055 requires insurers, employers that self-insure and others that provide individuals with minimum essential coverage (MEC), including coverage under an employer-sponsored plan, to file annual returns reporting certain information to the IRS.

A reporting entity under Section 6055 must also furnish a written statement to each individual listed on the return showing the information reported to the IRS for that person. The information reported under Section 6055 can be used by individuals and the IRS to verify the months, if any, in which the individuals were covered by MEC.

Effective Date

The proposed regulations under Section 6055 apply for calendar years beginning after December 31, 2014. Under Notice 2013-45, Section 6055 reporting entities are not subject to penalties for:

Failing to comply with Section 6055 reporting requirements for coverage in 2014 (which would have resulted in reporting in 2015).
Not providing statements to covered individuals in 2015 (see Legal Update, IRS Transition Relief Addresses Delayed Information Reporting and Employer Mandate under the ACA).

This means reporting entities will not be subject to penalties if they:

First report MEC information beginning in 2016 (for 2015).
Provide statements to covered individuals in 2016 (for 2015).

Penalties

A reporting entity that fails to comply with Section 6055 may be subject to penalties for:

Failing to file a correct information return (IRC Section 6721).
Not providing correct payee statements (IRC Section 6722).

However, these penalties may be waived for failures that are due to reasonable cause and not willful neglect.

Who Must Report MEC Information

In addition to health insurers, employers that self-insure are also subject to Section 6055 reporting. Under the proposed regulations, the employer is the plan sponsor and reporting entity for self-insured arrangements. However, the controlled group rules of IRC Section 414 do not apply (see Practice Note, Controlled Group and Affiliated Service Group Rules). This means that a self-insured group health plan covering employees of related corporations is treated as sponsored by more than one employer, and each employer must report under Section 6055.

Although reporting entities may use third parties to facilitate filing returns and statements to comply with Section 6055, the liability for failing to report ultimately remains with the reporting entity.

Required Content

Among other things, a Section 6055 information return must include:

The name, address and employer identification number (EIN) for the filer of the return.
The name, address, and TIN or date of birth (if a TIN is not available), of the responsible individual (that is, the primary insured or other related person who submits the application for coverage).
The name and TIN (or date of birth if a TIN is not available) of each individual covered under the policy.
For each covered individual, the months for which the individual was enrolled in coverage and entitled to receive benefits (for at least one day).

In addition, for employer-provided coverage, the proposed regulations require employers to report:

The name, address and EIN of the employer maintaining the plan.
Whether coverage was enrolled in through the Small Business Health Options Program (SHOP).

The proposed regulations do not require reporting of information that would not to be needed by individual taxpayers or the IRS for purposes of administering the individual mandate or the small employer tax credit (for example, the portion of premiums paid by the employer). Also, the preamble explains that Section 6055 reporting is not required for health savings accounts (because they are not MEC) and health reimbursement arrangements (and other arrangements that supplement MEC) (see Practice Note, Defined Contribution Health Plans: Overview).

Timing of Returns; Electronic Filing

Section 6055 returns and transmittal forms must be submitted by February 28 (or March 31 if filed electronically) of the year following the calendar year in which a reporting entity provides MEC.

Also, any reporting entity can file electronically under Section 6055.

Proposals to Simplify Reporting

In an attempt to simplify Section 6055 compliance, the proposed regulations (among other things) allow use of substitute forms and statements to individuals which, under future guidance, may include a single substitute statement to covered individuals for both Sections 6055 and 6056. Also, the IRS is considering allowing large employers with self-insured plans to forgo providing Section 6056 statements to covered employees if they:

Provide mandatory minimum value coverage to employees.
Offer coverage to spouses and dependents.
Do not require an employee contribution.

Statements Provided to Individuals

The proposed regulations also require reporting entities to furnish a statement to covered individuals providing:

The insurance policy number.
The reporting entity's name, address and a contact number.
The information required to be reported to the IRS.

This statement may be electronically provided to the participant if he consents.

Reporting Health Insurance Coverage Information (Section 6056)

IRC Section 6056 requires applicable large employers (ALEs), defined as employers with at least 50 full-time employees (including full-time equivalent employees) on business days during the prior year, to:

Report to the IRS information regarding:
- their compliance with the Affordable Care Act's (ACA's) employer mandate (IRC Section 4980H); and
- the health care coverage they have offered to employees.
Provide statements to employees for use by the employees in determining whether, for each month of the calendar year, they can claim a premium tax credit under the ACA (IRC Section 36B) (see Practice Note, Health Insurance Exchanges and Related Requirements under the ACA).

The proposed regulations address various aspects of filing the returns and providing the employee statements.

ALEs must file returns for each full-time employee, and must provide employee statements by January 31 of the calendar year following the calendar year for which the return information must be filed.

Under the proposed regulations:

All employers treated as a single employer under the controlled group rules of IRC Section 414 are treated as one employer for purposes of determining large employer status (see Practice Note, Controlled Group and Affiliated Service Group Rules).
The filing and furnishing statement requirements apply separately to each person, referred to as an ALE member, that comprises the ALE.

This means that the requirements apply to each ALE member, on a member-by-member basis, even though the determination of whether an entity is an ALE is made at the aggregate level. A separate return is required for each FTE, but the returns must be accompanied by a single transmittal form for all returns filed for a calendar year.

Effective Date

The proposed regulations would apply for calendar years beginning after December 31, 2014. Under IRS Notice 2013-45, large employers would not be subject to penalties for failing to comply with Section 6056 reporting rules during 2014 (including furnishing employee statements in 2015) (see Legal Update, IRS Transition Relief Addresses Delayed Information Reporting and Employer Mandate under the ACA). This means large employers would not be subject to penalties if they first report beginning in 2016 for 2015 (including the furnishing of employee statements).

Penalties

An ALE member that fails to comply with Section 6056 may be subject to penalties for:

Failing to file a correct information return (IRC Section 6721).
Not providing correct payee statements (IRC Section 6722).

Required Content

Under the proposed regulations, information returns must satisfy various content requirements, including:

The ALE member's name, address and employer identification number.
A certification of whether the ALE member offered its FTEs and their dependents the opportunity to enroll in MEC under an eligible employer-sponsored plan, by month.
The number of FTEs for each month of the calendar year.
For each FTE:
- the months during the calendar year for which plan coverage was available; and
- the employee's share of the lowest cost monthly premium (self-only) for minimum value coverage offered to the employee under the plan.
The name, address and taxpayer identification number of each FTE during the calendar year.
The months, if any, during which the employee was covered by an eligible employer-sponsored plan.

The preamble to the proposed regulations notes that other information might be requested, through the use of indicator codes, including:

Whether coverage offered to employees and their dependents meets minimum value.
The total number of employees, by month.
Whether an employee's effective date of coverage was affected by a waiting period.
Whether a full-time employee is treated as eligible to participate in a multiemployer plan, if an ALE member is a contributing employer to a multiemployer plan.

Also, every ALE member that files an information return must provide each FTE a statement that includes:

The ALE member's name, address and EIN.
The information about the employee that must be shown on the Section 6056 return.

Timing of Returns

Information returns under Section 6056 must be filed annually. The returns are due no later than February 28 (March 31, if filed electronically) of the year immediately following the calendar year to which the return relates. This is the same schedule as for other information returns, including Forms W-2 and 1099. IRS Notice 2013-45 provided transition relief for Section 6056 reporting for 2014 (see Legal Update, IRS Transition Relief Addresses Delayed Information Reporting and Employer Mandate under the ACA). Also, the Section 6056 employee statements must be provided to FTEs on or before January 31 of the year immediately following the calendar year to which the statement relates.

Electronic Filing

The proposed regulations generally require electronic filing of Section 6056 returns, though an exception permits ALE members who file fewer than 250 returns during the calendar year to submit paper forms.

Employers can provide employee statements to employees electronically if certain notice, consent and technological requirements are met.

Multiemployer Plans

The IRS anticipates a bifurcated reporting method regarding full-time employees who are eligible to participate in a multiemployer plan, consisting of:

One return for FTEs eligible to participate in the multiemployer plan, or, for employers that participate in more than one multiemployer plan, one return for each relevant multiemployer plan in which FTEs are eligible to participate.
Another return for the remaining FTEs (who are not eligible to participate in a multiemployer plan).

The multiemployer plan administrator could report on behalf of an ALE member that is a contributing employer. The administrator's report would only pertain to the ALE member's full-time employees who are eligible for coverage under the multiemployer plan. However, the ALE member would:

Remain ultimately responsible for Section 6056 information reporting for all its FTEs.
Remain liable for failing to properly file returns or furnish statements.

Role of Third Party Administrators

ALE members can contract with third party administrators (and other third parties) to file their returns and provide employee statements. However, the ALE members would remain responsible for satisfying the Section 6056 requirements. For example, ALE members of a controlled group could rely on one of the ALE members to file returns and furnish employee statements on behalf of the other ALE members.

Simplified Methods for Section 6056 Reporting

In the preamble, the IRS addresses several potential simplified methods under Section 6056. For example, under one simplified method, certain employers could report offers of minimum value coverage on their Form W-2s, instead of reporting the offers to the IRS on a Section 6056 employee statement. This approach could be used for any employee employed by the employer for the entire calendar year if the following elements all remain the same for all 12 months of the calendar year:

The offer of minimum value coverage.
The individuals to whom the offer is made.
The employee contribution for the lowest-cost option for self-only coverage.

Possibilities for Combined Reporting

ALE members that provide MEC on a self-insured basis are subject to the reporting requirements under:

Section 6051, which requires employers to provide Forms W-2 reporting wages paid and taxes withheld.
Sections 6055 and 6056.

The preamble to the proposed regulations addresses proposals for allowing combined reporting in certain situations. Among other combined reporting proposals, the preamble indicates that the IRS is considering whether employers that sponsor self-insured plans could fulfill their obligation to furnish an employee statement under both sections 6055 and 6056 through the use of a single substitute statement.

Practical Impact

The new reporting requirements under Sections 6055 and 6056 are especially burdensome for employers that sponsor self-insured plans, which are subject to both requirements in addition to Form W-2 reporting (Section 6051). Unfortunately, the general reporting method under Section 6056 does not envision combined reporting under Sections 6051, 6055 and 6056. The IRS has indicated, however, that it is considering, solely for purposes of providing information to employees (as opposed to filing with the IRS), whether employers that sponsor self-insured plans could satisfy the employee statement requirements under Sections 6055 and 6056 using a single substitute statement. Also, it is possible that the final regulations will adopt simplified methods for information reporting addressed in these proposed regulations.

IRS Proposed Rules Address Health Insurance Information Reporting for Employers and Insurers | Practical Law