Question: How should employers approach the basic ACA reporting questions in the setup forms used by most payroll or benefits administration systems?
Short Answer: The three key inputs are the measurement method, affordability safe harbor, and—for those employers utilizing the look-back measurement method—the measurement and stability periods.
Note: This is the fourth post in a four-part series addressing ACA reporting vendor setup questions.
- Part I: The Measurement Method
- Part II: The Affordability Safe Harbor
- Part III: The Measurement, Administrative, and Stability Periods (LBMM Only)
General Rule: ACA Reporting
The ACA requires Applicable Large Employers (ALEs) subject to the ACA employer mandate to report whether they offered medical coverage (i.e., minimum essential coverage) that was affordable and provided minimum value to full-time employees. This reporting is generally handled via IRS Forms 1094-C/1095-C.
Although Congress effectively repealed the ACA individual mandate in the Tax Cuts and Jobs Act by zeroing out the tax penalty as of 2019, employers with a self-insured plan (and insurance carriers for a fully insured plan) are still required to report the months of coverage for the employee and any covered dependents. Self-insured ALEs report this coverage information—despite it no longer having any federal income tax consequence—in Part III of the Form 1095-C. Insurance carriers for fully insured plans report this coverage information on a separate Form 1095-B.
For more details from an employer perspective:
- ABD 2020 ACA Employer Mandate Pay or Play and ACA Reporting Guide
- ABD Compliance Alert: ACA Reporting Deadlines Extended Again
For more details from an employee perspective:
- ABD ACA Reporting Infographic for Employees: Fully Insured
- ABD ACA Reporting Infographic for Employees: Self-Insured
- ABD ACA Reporting Infographic for Employees: Fully Insured and Self-Insured
- ABD ACA Educational Reporting Video
Key Decision Point #4: The Other ACA Reporting Decision Points
The remaining items to enter in an ACA reporting vendor setup questionnaire are typically far simpler:
Minimum Essential Coverage (MEC)? Almost Always “Yes”
Every employer that offers a major medical plan offers minimum essential coverage in the form of an “eligible employer-sponsored plan.”
Only employers that limit their group health plan offerings to excepted benefits (e.g., dental, vision, health FSA, EAP) would fail to offer MEC.
Minimum Value (MV)? Almost Always “Yes”
A medical plan provides minimum value if the percentage of the total costs of benefits provided under the plan is no less than 60%. This means that the plan must have at least a 60% actuarial value to match at least a Bronze level plan. Virtually all employer-sponsored medical plans provide MV.
A few plans—typically referred to as “skinny plans”—do not meet this standard, but it is very uncommon because the employer is exposed to §4980H(b) penalty liability for such offers.
Self-Insured? “Yes” If Medical Plan Option is Not Fully Insured
Self-insured health plans have additional reporting requirements under §6055 requiring the employer to complete the employee and dependent coverage information in Part III of the Form 1095-C. Employers leave this Part III section blank for employees enrolled in a fully insured plan (that coverage information is instead reported by the carrier on a separate Form 1095-B).
Keep in mind that so-called “level funded” plans or any similar arrangement that operates like a hybrid approach are considered self-insured for these purposes (because they are not fully insured).
Aggregated ALE Group? “Yes” if Multiple EINs in Employer’s Controlled Group
Where an Applicable Large Employer (ALE) subject to the ACA employer mandate has multiple corporate entities in the controlled group (an Aggregated ALE Group), each subsidiary or related entity in the controlled group must file a separate Form 1094-C. Each EIN is referred to as an Applicable Large Employer Member (ALEM) for these purposes. Each ALEM must report separately and complete Part IV of the Form 1094-C listing out the name and EIN of every other entity in the controlled group.
- For more details, see our previous post: Adding a New EIN to the Health Plan.
Qualifying Offer Method? “Yes” if Using Federal Poverty Line Affordability Safe Harbor
Where the employer’s offer of coverage meets the federal poverty line affordability safe harbor described in Part II, the employer will generally be able to take advantage of slightly streamlined reporting via the Qualifying Offer Method. The only other requirement is that the offer include spouses and children to age 26—which virtually all plans do.
Under the Qualifying Offer Method, the employer does not complete Line 15 of the full-time employee’s Form 1095-C. This streamlined reporting option is available because the monthly employee-share of the premium for the lowest cost plan at the employee-only tier is not relevant for B Penalty purposes where coverage is deemed affordable for all employees under the federal poverty line affordability safe harbor.
- For more details, see our previous post: Streamlined ACA Reporting Methods.
98% Offer Method? Recommend “No”
This slightly streamlined reporting is generally available where the employer offers MEC that provides MV to at least 98% of its full-time employees. Employers utilizing this method do not have to complete the monthly full-time employee count section of the Form 1094-C.
The streamlined effect is so slight that we generally recommend not utilizing this method to avoid a situation where a small handful of full-time employees (e.g., interns, temps, contingent workforce) caused the employer to inadvertently fail to meet the 98% offer threshold. There is hardly any benefit to this approach, and the small benefit it offers is generally outweighed by the potential penalty risk if incorrectly relied upon.
If the employer is very confident that all full-time employees outside a limited non-assessment period were offered coverage (including interns, temps, contingent workforce, etc.), it would not hurt to utilize the 98% Offer Method. However, the employer should be aware that this method provides only a very minimal streamlined reporting advantage.
- For more details, see our previous post: Streamlined ACA Reporting Methods.
Rule of Parity? Recommend “Yes”
The general rule is that an employee’s break in service of at least 13 consecutive weeks (26 weeks for an educational organization) permits the employer to treat the returning employee (whether returning from non-protected leave or as a rehire) as a new hire and subject to a new limited non-assessment period.
Employers that use the rule of parity can also treat as a new hire any employee whose break in service with no hours of service is at least four consecutive weeks. Under the rule of parity, a break in service occurs if that period of at least four consecutive weeks with no hours of service is longer than the employee’s immediately preceding period of employment. For the limited number of employees to which this rule of parity applies, it generally makes sense to take advantage of the rule.
- For more details, see slide 15 of our ABD 2020 ACA Employer Mandate Pay or Play and ACA Reporting Guide.
Authoritative Transmittal? Almost Always “Yes”
The ACA reporting rules permit employers with multiple operating divisions within the same ALEM (EIN) to file separate Forms 1094-C. In that scenario, one of such divisions must file an authoritative transmittal aggregating the data for all the divisions, while the other divisions can report only on their division’s employees.
Very few employers prefer to file more than one Form 1094-C for the same ALEM (EIN), and therefore virtually all employers file a single authoritative transmittal for the entire EIN.
Conditional Offer of Spousal Coverage? Almost Always “No”
Employers offering coverage to a spouse only under certain conditions, such as only to spouses who do not have access to other group health plan coverage, must report the offer using a special code on the Form 1095-C. Very few employers offer spousal coverage conditionally, and therefore this will almost always be “no.”
- For more details, see our previous post: Conditional Offer of Coverage for Spouses.
Equivalency Hours for Salaried Employees? Almost Always “Yes”
The hours of service rules provide that for hourly employees, employers must calculate actual hours of service from records of hours worked or for which payment is made or due.
Employers are also permitted to use actual hours for non-hourly employees (salaried employees), but most employers do not keep such records because these employees are typically exempt. The rules therefore permit employers to instead use a days-worked or weeks-worked equivalency for salaried employees.
Under the days-worked equivalency method, employees are credited with eight hours of service for each day they are paid or entitled to pay. Under the weeks-worked equivalency, employees are credited with 40 hours of service for each week the employee is paid or entitled to pay. Either approach is fine and is generally preferred to tracking actual hours for salaried employees.
- For more details, see slide 16-18 of our ABD 2020 ACA Employer Mandate Pay or Play and ACA Reporting Guide.
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).