2. 6055/6056 Reporting & Disclosure Rules A Compliance & Regulatory Review with Practical Applications & Examples Presented by: Michael Vech | Actuary Dan LaRock | Principal December 3, 2015 1 Siouxland Chapter

3. A Compliance & Regulatory Review 2

4. Employer Reporting Obligations  Two new filing requirements that potentially may apply: –Code Section 6055  Designed to help the IRS administer the individual mandate  Helps individuals report to IRS regarding individual mandate –Code Section 6056  Designed to help IRS administer both Code Section 4980H (Employer Shared Responsibility) and Code Section 36B (premium tax subsidy/credit)  Helps full-time employees substantiate premiums subsidy/tax credit 3

5. Individual Mandate in a Nutshell  The annual fee for not having insurance beginning January 1, 2014 is as follows: –2014:  $95 per adult and $47.50 per child (up to $285 per family) or 1% of household income above the tax return filing threshold for your filing status – whichever is greater –2015:  $325 / $162.50 ($975) / 2% –2016:  $695 / $347.50 ($2,085) / 2.5% 4

6. Individual Mandate in a Nutshell  For the 2014 tax year, the amount of Shared Responsibility Payment was calculated on line 61 of Form 1040  There was not a Shared Responsibility form  Used Form 8965 to report an exemption from the Shared Responsibility Payment 5

7. Individual Mandate in a Nutshell  If you don’t obtain and maintain minimum essential coverage throughout the year, or obtain an exemption, you’ll have to make a Shared Responsibility Payment for each month you went without coverage or exemption.  If you have coverage for at least one day within the taxable year, then you won’t owe the payment for that month. 6

8. 4980H in a Nutshell Key Terms and Concepts  Who is an ALE that is subject to the penalty?  Who are full-time employees?  What is minimum essential coverage offered through an eligible employer-sponsored plan?  When is coverage affordable?  When does coverage provide minimum value? 7

9. 4980H in a Nutshell  Only applicable to ALEs  Generally effective January 2015 (but see transition relief)  Small ALEs are not subject to excise taxes until 2016 (but must still report for 2015) –Small ALE is controlled group of corporations that satisfy the following conditions:  50 to 99 FTEs in 2014  Employer does not reduce size of workforce or reduce overall hours of service of employees for other than bona fide business reasons  Employer does not eliminate or materially reduce health coverage maintained on February 9, 2014 –Contribution for employee-only coverage must be at least 95% of dollar amount on February 9, 2014 or same or higher percentage –Change in employee-only coverage permitted so long as coverage retains minimum value status –No reduction in classes of employees/dependents who were eligible on February 9, 2014 8

10.  Compliance with 4980H determined on controlled group member basis –Any common law employee who has the requisite hours of service to qualify as a full-time employee  Two methods for identifying employees who qualify as a full-time employee: –Look-back measurement –Monthly measurement  Excise tax rules: –They are assessed against a controlled group member for each month that an employee who qualified as a full-time employee to whom qualifying coverage must be offered received a subsidy in the Exchange –Do you offer coverage each month through an eligible employer-sponsored plan that is both affordable and provides minimum value to 100% of your employees who qualify as a full-time employee to whom coverage must be offered (and their dependent children)?  If yes, no excise tax for that month  If no, determine which excise penalty applies (Sledgehammer or Tack Hammer) 9 4980H in a Nutshell

11.  Sledgehammer Penalty –You fail to offer coverage through an eligible employer- sponsored plan to 95% of your employees who qualify as a full-time employee to whom coverage must be offered (and their dependent children and one employee who qualified as a full-time employee to whom coverage must be offered receives a subsidy in the Exchange)  70% in 2015 only –1/12 of 2,000 ($167) x all employees of the controlled group member who qualified as a full-time employee to whom coverage must be offered reduced by the employer’s allocable share of 30  80 in 2015 –The reason that employee receives subsidy is not relevant 10

12. 4980H in a Nutshell  Tack-Hammer Penalty –Employer satisfies substantially all tests but does not offer affordable, minimum value coverage through an eligible employer-sponsored plan to 100% of its employees who qualify as full-time employees to whom qualifying coverage must be offered (and their dependent children) and a full-time employee to whom coverage must be offered receives a subsidy in the exchange –1/12 of 3,000 ($250) x the total number of full-time employees who receive a subsidy in the Exchange that month 11

13. 4980H in a Nutshell  “Offer” coverage –Effective opportunity to enroll or decline each year  Affordability –Safe harbors  W-2 wages (annual determination)  Rate of pay  FPL –Affordability in Exchange is based on household income  6056 Reporting –Provide coverage offer information for each month during the year with respect to each employee who qualifies as a full-time employee at least one month 12

14. 6055  Why? –To give IRS and Taxpayers information necessary to administer the individual mandate 13

15.  Who? –Entity that provides coverage  Insurance carrier – if fully insured  “Plan Sponsor” if self-insured –Each member of a controlled group whose employees participate in a health plan –Each employer participating in a MEWA –If a plan is maintained by union (but not a multi-employer plan), the employee organization is the plan sponsor) 14 6055

16.  Who? –Third Party may file on behalf of coverage provider, but coverage provider remains liable –Special rule for governmental entities that allows governmental entity to designate another, related governmental entity as the party responsible for filing (to the extent the designated entity agrees in writing) 15 6055

17.  What? –Identify all individuals covered under a plan providing minimum essential coverage at least one day of any month during the calendar year  Includes employees, retirees, dependents, independent contractors, qualified beneficiaries, “alternate recipients” covered pursuant to a QMCSO, non-employee board members  6055 regulations refer to Code Section 6724 regulations for rules regarding solicitation of dependent SSN –The “3 requests” requirement:  When the relationship begins  By December 31 of the year in which the relationship begins  By December 31 of the next year –Use DOB if unable to receive the dependent’s SSN 16

18. 6055  What? –Plan year not relevant; all reporting is done on a calendar year basis –No description of coverage needed  Only reporting for those covered under a plan that qualifies as MEC generally –What is MEC?  Any group health plan that provides other than excepted benefits –Affordability not relevant –Minimum value not relevant 17

19.  How? –Generally, coverage providers will use 1094/1095-B series to report MEC enrollments to IRS and “responsible individuals” –However, if plan is self funded and sponsored/ maintained by applicable large employer (ALE) member, then:  Must use 1094/1095-C series to report any individual who was an employee in any month of the calendar year, and his/her dependents, who were covered under the self-insured MEC plan at least one day of any month in the calendar year  May but not required to use C-series to report individuals covered under self-insured MEC plan who were not employees at any time during the year –If C-series not used for non-employee covered individuals, then use B-series 18 6055

20.  How? –Send to last known address of “responsible individual”  Employee  Former Employee  Parent –Alternate recipient covered pursuant to QMCSO  Other individual who enrolls himself/herself and others –Qualified beneficiary ex-spouse? –First-class mail –Electronic if advance consent provided by responsible individual 19 6055

21.  When? –In the year following the calendar year being reported –To IRS:  March 31 if filing electronically  February 28 if filing paper forms –To primary responsible individual: January 31 20

22.  Why? –So IRS can administer Employer Shared Responsibility requirements –So IRS and taxpayers can administer the premium tax credit/subsidy under Code Section 36B  Although any employee can qualify for credit/subsidy, no reporting for credit/subsidy related reporting required for other than full-time employees 21 6055

23. 6056  Who? –Each ALE member:  Each member of the controlled group of corporations (“ALE member”) that constitute an ALE is independently responsible for reporting  Third Party may file on behalf of ALE member, but ALE member remained liable –Special rule for governmental entities (same rule as applicable under 6055) 22

24.  What? –Identify all employees who were full-time employees (as defined by 4980H) at least one full month during the year –Identify the coverage that was offered, if any, during the months that the employee was a full-time employee –If coverage was not offered for an entire month, identify whether any exceptions to excise tax apply  e.g., employee not employed during that month  e.g., employee part time during the month  e.g., employee in limited non-assessment period –If coverage offered during a month, indicate whether coverage was affordable or not in such month 23 6056

25.  What? –It doesn’t matter for 6056 purposes whether coverage is fully insured or self insured, or even whether coverage is offered at all. –If an employer is an ALE member, and the employer has at least one employee who qualified as a 4980H full-time employee, 6056 reporting is required! 24 6056

26.  How? –Use 1094/1095-C series to report to IRS and full-time employees –Send to last known address of full-time employee  First-class mail  Electronic if advance consent provided by responsible individual –Relief for full-time employee reporting for:  Full-time employees who received a “Qualifying Offer” for all 12 months –Relief not applicable with respect to such full-time employees who actually enrolled in a self-insured plan  Employers subject to Qualifying Offer Method Transition Relief (only for 2015) –Relief for reporting to IRS and full-time employees under 98% offer method 25

27.  When? –In the year following the calendar year being reported –To IRS:  March 31 if filing electronically  February 28 if filing paper forms –To full-time employee: January 31 26 6056

28. Key Clarifications in Instructions  Clarity on 6055 reporting by ALE members for individuals who are not employees at any time during calendar year but are enrolled in self-insured plan –May use C-series form to report non-employee covered individuals  Reporting relief for full-time employees who receive a qualifying offer for all 12 months not available if actually enrolled in a self-insured plan  Offer to spouse conditioned on a reasonable objective restriction still considered an offer even if spouse doesn’t meet condition –e.g., spouse is eligible to enroll only if not eligible for other employer coverage is a reasonable objective restriction 27

29. Practical Applications & Examples 28

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32. Employees Who Receive Form 1095-C  Employees who are identified as full-time employees for any month during the calendar year –Look-back measurement method: employee locked into full-time status in stability period or reasonably expected to be a full-time employee at start date –Monthly measurement method: employee has at least one month with at least 130 hours  If self-insured, any enrolled employee even if not a full-time employee in any month 31

33. Offer of Coverage Indicator Codes These codes are used to identify the type of health coverage, if any, actually offered by (or on behalf of) the ALE to the employee. 1AQualifying Offer 1BMinimum essential coverage providing minimum value offered to employee only 1C  Minimum essential coverage providing minimum value offered to employee; and  At least minimum essential coverage offered to dependent(s) (not spouse) 1D  Minimum essential coverage providing minimum value offered to employee; and  At least minimum essential coverage offered to spouse (not dependent[s]) 1E  Minimum essential coverage providing minimum value offered to employee; and  At least minimum essential coverage offered to dependent(s) and spouse 1FMinimum essential coverage not providing minimum value 1G Offer of coverage to employee who:  Was not a full-time employee for any month of the calendar year; and  Enrolled in self-insured coverage for one or more months of the calendar year 1HNo offer of coverage 1IQualifying Offer Transition Relief 2015 32

34. Section 4980H Safe Harbor Codes & Other Relief These codes are used in Part II of Form 1095-C to indicate that, under a rule or safe harbor, the ALE will not be subject to a penalty under Section 4980H(b) for the month, or that the health coverage offered will be treated as affordable for purposes of Section 4980H(b). 2AEmployee not employed during the month 2BEmployee not a full-time employee 2CEmployee enrolled in coverage offered 2DEmployee in a Section 4980H(b) Limited non-Assessment Period 2EMulti-employer interim rule relief 2FSection 4980H Affordability Form W-2 Safe Harbor 2GSection 4980H Affordability Federal Poverty Line Safe Harbor 2HSection 4980H Affordability Rate of Pay Safe Harbor 2INon-calendar year transition relief applies to this employee 33

35. Certifications of Eligibility 1094-C, Part II: ALE Member Information Line 22 Box A: Qualifying Offer Method  Qualifying offer – an offer of MEC providing minimum value at an employee cost for employee-only coverage of no more than 9.5% of the mainland single federal poverty level, provided that the offer includes the employee’s spouse and dependents (if any)  Qualifying offer to one or more full-time employees for all calendar months for which the employee was a full-time employee  Advantages: –Do not fill out line 15 of 1095-C –May use “simplified” Alternative Furnishing Method in some cases for employees who received a Qualifying Offer for all 12 months  Not required if eligible 34

36. Certifications of Eligibility 1094-C, Part II: ALE Member Information Line 22 Box B: Qualifying Offer Method Transition Relief  Available for only 2015  Qualifying offer to at least 95% of full-time employees for one or more months  Advantages: –Use Qualifying Offer code of 1A or 1I on line 14 of 1095-C –Do not fill out line 15 of 1095-C –May use “simplified” Alternative Furnishing Method for all employees, but there are two possible versions based on whether employee had qualifying offer for all 12 months or not  Not required if eligible 35

37. Certifications of Eligibility 1094-C, Part II: ALE Member Information Line 22 Box C: Section 4980H Transition Relief  Code A: ALEs with 50 to 99 full-time equivalent employees and maintained previous coverage and plan years –Eligible employers are not subject to 4980H(a) “Sledgehammer” or 4980H(b) “Tack-Hammer” penalties until the first day of 2016 plan year  Code B: ALEs with 100 or more full-time equivalent employees or 50 to 99 ALEs not eligible for Code A –Sledgehammer penalty reduced by 80 employees instead of 30 employees 36

38. Certifications of Eligibility 1094-C, Part II: ALE Member Information Line 22 Box D: 98% Offer Method  ALE must certify it offered, for all months of the calendar year, affordable health coverage providing minimum value to at least 98% of its employees for whom it is filing a 1095-C  Advantages: –Not required to identify which of its employees are actually full time –Not required to provide total number of full-time employees  Is still required to file Forms 1095-C on behalf of all its full-time employees, so how is it possible to not have identified which employees are full time? 37

39. Example 1 Full-time employee for the entire year. Offered and accepted coverage. Part II: Employee Offer and Coverage All 12 Months Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. 14 Offer of Coverage (enter required code) 1E 15 Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage $100 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) 2C Alternative Line 15 (if premiums were not the same the entire year): 15 Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage $95 $105 38

40. Example 2 Full-time employee for the entire year. Waived coverage that was affordable using the rate of pay safe harbor. Part II: Employee Offer and Coverage All 12 Months Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. 14 Offer of Coverage (enter required code) 1E 15 Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage $100 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) 2H Alternative Line 15 (if premiums were not the same the entire year): 15 Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage $95 $105 39

41. Example 3 Full-time employee for the entire year. Waived coverage that was not affordable under the safe harbor elected by the employer. Part II: Employee Offer and Coverage All 12 Months Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. 14 Offer of Coverage (enter required code) 1E 15 Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage $200 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) Alternative Line 15 (if premiums were not the same the entire year): 15 Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage $190 $210 40

42. Example 4 Full-time employee hired in April. Offered and accepted coverage after a waiting period (first of month after 30 days). Part II: Employee Offer and Coverage All 12 Months Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. 14 Offer of Coverage (enter required code) 1H 1E 15 Employee Share of Lowest Cost Monthly Premium, for Self- Only Minimum Value Coverage $100 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) 2A 2D 2C 41

43. Example 5A Full-time employee terminated in August. Offered and accepted coverage while employed. Coverage ends on last day of month of termination. Months after termination are coded as “no offer of coverage” and “not employed” regardless of acceptance of COBRA. Part II: Employee Offer and Coverage All 12 Months Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. 14 Offer of Coverage (enter required code) 1E 1H 15 Employee Share of Lowest Cost Monthly Premium, for Self- Only Minimum Value Coverage $100 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) 2C 2A 42

44. Example 5B Full-time employee terminated in August. Offered and accepted coverage while employed. Coverage ends on last day of employment. Months after termination are coded as “no offer of coverage” and “not employed” regardless of acceptance of COBRA. Part II: Employee Offer and Coverage All 12 Months Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. 14 Offer of Coverage (enter required code) 1E 1H 15 Employee Share of Lowest Cost Monthly Premium, for Self- Only Minimum Value Coverage $100 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) 2C 2B2A Line 16 in month of termination: Enter code 2B if the employee is a full-time employee for the month and whose offer of coverage ended before the last day of the month solely because the employee terminated employment during the month. Line 14 in month of termination: The employer is treated as having offered the employee health coverage for the month only if the employee would have been offered health coverage for the entire month had the employee been employed for the entire month. 43

45. Example 6 Variable hour employee hired in April of the prior year. Twelve-month look-back measurement period method with Initial Stability Period beginning June 1. Employer will offer coverage if identified as a full-time employee. This employee is identified as a full-time employee and has elected coverage. Part II: Employee Offer and Coverage All 12 Months Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. 14 Offer of Coverage (enter required code) 1H 1E 15 Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage $100 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) 2D 2C Alternative Line 16 (if coverage was waived and affordable using the rate of pay safe harbor): 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) 2D 2H 44

46. Example 7 Variable hour employee hired in April of the prior year. Twelve-month look-back measurement period method with Initial Stability Period beginning June 1. Employer will not offer coverage regardless of whether the employee was identified as a full-time employee. This employee is identified as a full-time employee. Part II: Employee Offer and Coverage All 12 Months Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. 14 Offer of Coverage (enter required code) 1H 15 Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) 2D? – Probably not allowed! 45

47. Example 8 Variable hour employee hired in a previous year. Monthly measurement period method (130+ hours in March, April, July and October). Employer will not offer coverage regardless of whether the employee was identified as a full-time employee. Part II: Employee Offer and Coverage All 12 Months Jan.Feb.MarchAprilMayJuneJulyAug.Sept.Oct.Nov.Dec. 14 Offer of Coverage (enter required code) 1H 15 Employee Share of Lowest Cost Monthly Premium, for Self- Only Minimum Value Coverage 16 Applicable Section 4980H Safe Harbor (enter code, if applicable) 2B 46

48. Other 1095-C FYIs  Part II Employee Offer and Coverage: –Line 14 – An employer offers health coverage for a month only if it offers health coverage that would provide coverage for every day of that calendar month –Line 15 – Only completed if code 1B, 1C, 1D or 1E is entered on Line 14; if no employee contribution toward premium is required, enter “0.00” rather than leaving blank  Part III Covered Individuals –Coverage is indicated if the individual was covered for at least one day in the month 47

49. Thank you!