The good news is that employer ACA reporting was delayed for 2014. The bad news is that your employees may be prompted for the new Form 1095 when they file their taxes for 2014. The Form 1040 will prompt filers to indicate whether they had health care coverage in 2014. While a recent press release from the Departments of Treasury and HHS states that, for many with employer-sponsored health insurance, indicating coverage status will be as easy as "checking the box," what makes it more complicated is the taxpayer documentation required in order to "check the box" and/or have on file in the event of an audit later.
Employer messaging with W-2 distribution could prevent employee calls to the payroll and benefits department during tax filing season. To start with, let employees know they may be asked for a 1095 and let them know this was a requirement the government delayed for employers until next year. Then you might suggest what they could use to document their coverage. Here are a few ideas:
- End-of-the-year payroll stub with health insurance deduction information.
- Health insurance ID card.
- Copy of the summary plan description (SPD).
- Enrollment confirmation statement from open enrollment for 2014 (you have yours, right?).
- Exchange Notice (if you completed Part B: Information About Health Coverage Offered by Your Employer)
You might also consider adding a similar message to the benefits and payroll pages on your online systems where employees might go in search of a 1095.
Advance preparation and communications could reduce calls and emails for HR staff, and help employees avoid additional stress during tax season.
Last week I promised you more information about a topic that’s rising to the top of the priority list for every employer — ACA reporting. Here’s an overview of the purpose and types of reporting, along with the action items employers should address between now and January 1.
The ACA reporting requirements, despite being an administrative burden to employers, answer three important questions for IRS enforcement.
- Did the employer offer the requisite coverage to satisfy the employer mandate?
- Did the taxpayer have the requisite coverage to satisfy the individual mandate?
- Was the taxpayer eligible for subsidized coverage?
Types of Reporting
Include all covered individuals enrolled in MEC.
Sent to each “responsible individual” who enrolls self or others in MEC.
Fully-insured plans: Insurer will provide MEC information on Forms 1094-B and 1095-B.
Include each full-time employee.
Sent to each employee who was full time for at least one month during reporting year.
Employer will provide ESR information on Forms 1094-C and 1095-C.
Next Steps for Employers
One of the most stifling issues for employers is locating and aggregating the necessary HR, payroll, and health plan data, which are often in disparate locations. Here are the immediate steps employers must address between now and January 1.
1. Make a list of the data to be reported.
The final rules and draft IRS forms have given us a good idea of what is required. But, we are still waiting on the final piece of the puzzle — the instructions. You’ll have to revisit your list and the steps below when the IRS releases the instructions.
2. Locate the data.
Many employers will find that the required HR, payroll, and health plan data must be captured from multiple vendors and systems. Using your list from step 1, identify who has the data that will be required to complete your reporting. Give special thought to the data you can’t locate. For example, many employers don’t have dependent social security numbers. Create and implement an action plan to get your missing data.
3. Ask how your vendors will support you.
Determine if your vendor partners will complete the MEC and/or ESR reporting or merely provide data reports. Our clients are seeing a mix of responses. To proceed to step 4, you’ll need to know what data each vendor will provide. If you work with a vendor that is committed to providing reporting services, get the specifics about the scope of their offering and proceed to the next step.
4. Decide who will aggregate the data.
According to the recent ERIC Survey of Large Employers on ACA Reporting, 28% of employers say that integrating data from two or more different systems is their greatest first-year challenge in meeting the ACA’s reporting requirements. You’ll need a plan to accept data feeds from the systems identified in step 2, aggregate the data, and populate the forms if you choose to do this internally. If you choose to outsource this function, you need to identify and begin implementation with that third party.
5. Begin tracking January 1, 2015!
Although the first ACA reporting deadline isn’t until Q1 2016, the forms require you to report data on a monthly basis. Tracking data as you go will be much easier than trying to pull 12 months of historical data in January 2016.
Everyone is shifting into planning mode this month, thinking about open enrollment for 2016 benefits. Whether you are making major benefit plan changes, going out to bid for services, or keeping things status quo, here’s what you need to keep in mind relative to the ACA.
Reporting requirements. If you have not yet established processes for ACA reporting for 2015, you are not alone. Many employers are just now focusing on the requirements and looking for resources to support compliance. There are many third-party options available to help if your payroll or HRIS teams don't have the bandwidth. But it’s best to get started now.
Tracking hours. Stay on top of eligibility determinations for variable-hour employees in a measurement period. Now that we are in full ESR compliance mode, be sure that your tracking systems are working well and a process is in place to identify individuals who should be offered benefits at the end of your initial and standard measurement periods. This will be an extra step in planning for open enrollment.
Temporary Reinsurance Fee. Just as a reminder, the annual fee is $44 per covered life for 2015 ($33 payable in January 2016, $11 in December 2016). As you project costs for 2016, remember that the fee will reduce to $27 per covered life, payable in a lump sum or two installments of $21.60 and $5.40.
Excise tax. We were pleasantly surprised to get documentation from Treasury for review and comment (IRS Notice 2015-16). It is the first of two documents they intend to release, with the second coming in a few months. The real takeaway, as it relates to 2016 planning, is that 2018 is not that far away! It is a good idea to look at a projection for 2018, based on what we know today, to determine your risk for hitting the threshold (here’s a calculator you can use that takes your medical plan costs as a starting point). Many employers have been making changes in anticipation of the tax for several years.
Exchange subsidy notices. Now that open enrollment for the public exchange is wrapping up, you may receive a notice if one of your employees signed up for subsidized exchange coverage. If you have multiple locations, you should alert staff at each site that a notice could be sent to their location and let them know where to forward it. It is also a good idea to establish a process for reviewing the notice and deciding how to respond under the various possible scenarios, including communication with the employee and/or the exchange.
Summary of Benefit Coverage (SBC). Be sure to check for updated template language and include the SBC on your open enrollment communication check-list.
Yes, I know it feels like 2015 open enrollment just ended. But with ACA compliance, as with your health, an ounce of prevention is worth a pound of cure.
As you finalize medical plan designs for 2016, make sure you consider these five compliance elements of the Affordable Care Act (ACA).
1. Embed individual out-of-pocket (OOP) limits. The ACA’s annual in-network OOP statutory limit for self-only coverage ($6,850) applies to all individuals, whether enrolled in self-only coverage or another tier (e.g., family). Be sure to confirm your medical carrier’s capabilities to adjudicate this benefit design feature. The penalty for non-compliance is $100 per day per individual.
2. Offer MEC to 95% of full-time employees. Under the ACA employer mandate, large employers must offer minimum essential coverage (MEC) to “substantially all” full-time employees and their dependent children (not spouses/domestic partners). In 2016, the “substantially all” percentage increases from 70% to 95%. Employers could be subject to assessments if at least one full-time employee receives tax-subsidized public exchange coverage. The assessment is an annual payment of $2,160 for each full-time employee minus the first 30 full-time employees.
3. Update FPL affordability safe harbor (generally $93 per month). The IRS established three affordability safe harbors employers may use to show coverage is affordable — Federal Poverty Level (FPL), W-2 wages, and rate-of-pay. For plan years beginning on or after July 22, 2015, the FPL safe harbor is $93 per month based on the 2015 FPL of $11,770 (higher in Alaska and Hawaii). The potential assessment for non-compliance is the lesser annual payment of:
- $3,240 for each full-time employee receiving tax-subsidized public exchange coverage
- $2,160 for each full-time employee minus the first 30 full-time employees
4. Consider treatment of opt-out credits in affordability calculations. A recent IRS FAQ regarding HIPAA’s health status nondiscrimination rules states that the required contribution of any employee eligible for a cashable opt-out (in this case, targeted “unhealthy” employees) would be the premium contribution plus the opt-out amount — raising the required employee contribution by the amount of the cashable opt-out. It’s unclear if this same analysis applies when calculating the affordability of coverage under the ACA’s play-or-pay requirements, individual mandate, and eligibility standards for public exchange subsidies. Employers with opt-out designs should review their plan’s affordability with their legal advisors. The potential assessment is same as for #3 above.
5. Prepare for play-or-pay and MEC reporting. The IRS will use the information from Forms 1094 and 1095 filings to confirm subsidy entitlement and assess payments under the individual coverage mandate and the employer shared-responsibility provisions. The first year for which the reporting is required is 2015, due in early 2016. Rules allow for a 30-day deadline extension for both furnishing the individual statements and filing the IRS transmittal, but each requires timely employer action. Employers filing late or inaccurate Forms 1094 and 1095 are subject to penalties of $250 per return, up to a $3 million maximum.
The ACA reporting deadlines for minimum essential coverage and employer shared responsibility occur in the first quarter of 2016. Individual statements (Form 1095-Cs) have a Monday, February 1, 2016, deadline and the IRS electronic transmittal due date (Form 1094-C) is Thursday, March 31, 2016.
Several months ago, about half of the employers we surveyed did not yet have a plan for how they would comply with the reporting requirements. Some may initially have thought they would handle the work in-house but now have decided to seek outside assistance from one of the many third-party vendors that offer reporting solutions. However, we have been hearing that because of demand and the lengthy implementation that the work requires, some vendors can no longer commit to meeting the reporting deadlines. They are offering to send the 1095-Cs at a later date in February or in March.
Is this feasible? And if so, what are the risks? In fact, the rules clearly allow for an extension for both deadlines (as described in the 2015 reporting instructions):
- 1095-Cs. Per 26 CFR §301.6056-1(g)(1)(ii), you may apply to the IRS in writing for a 30-day extension. A simple letter to the IRS requesting the extension and providing the reasons it is needed can serve as an application. While the IRS has authority to provide procedures for automatic extensions, we are not aware of any plans to do so. The 2015 reporting instructions contain more information on the content of this letter.
- 1094-Cs. Per 26 CFR §301.6056-1(e), referencing 26 CFR §1.6081-8, the IRS will grant an automatic 30-day extension upon an employer’s filing of Form 8809. You can submit a request for a second 30-day extension if submitted before the initial extension period ends but the second extension is not automatic.
For the 1095-C, the obvious risk is that the IRS will not grant the extension. Also, employers should consider employee reaction to a delay. Recall that the 1095-C may be required in order to complete personal income tax filing. (See lines 46 and 61 of Form 1040).
Seeking an extension, though, may become the best choice for employers who do not choose a reporting solution soon. If you haven’t finalized plans for reporting, act now!
- Review the alternative reporting options — i.e., qualifying offer, qualifying offer transition relief, and 98% offer. These options can make reporting somewhat simpler, particularly for fully insured plans.
- Evaluate resources available to see if handling the reporting in-house is feasible. Even though the requirements are pretty complex, a third of employers we surveyed thought it was.
- Consider the pros and cons of filing for an extension.
Plans that implement reference-based pricing (RBP) set a maximum amount payable for specific procedures. Higher-than-normal cost sharing applies for providers charging above reference price. Employers using or considering RBP need to stay on top of ACA rules and guidelines to avoid potential compliance problems:
- The ACA set limits on out-of-pocket expenses for non-grandfathered plans ($6,600 for individual coverage; $13,200 for other than individual coverage).
- An FAQ issued on May 2 indicated that a large insured or self-insured group using RBP would not be considered as failing to comply with the out of pocket limits as long as the plan uses “any reasonable method” to ensure adequate access to quality providers.
- The new FAQ specifies factors to determine if the use of RBP is “reasonable,” which would presumably allow the plan not to count costs beyond the RBP against the out-of-pocket maximum.
So what do employers need to keep in mind with RBP to keep it “reasonable”?
- Type of service: Plans must offer the member sufficient time to make an informed choice of provider after the need for care has been identified; RBP cannot be applied to emergency services.
- Reasonable access and quality standards: Plans must have an adequate number of providers that accept the RBP and ensure those providers meet reasonable quality standards.
- Exceptions process: Plans must establish an exceptions process that is easily accessible by members.
- Disclosures: Plans must automatically provide information about the pricing structure, a list of applicable services, and the exceptions process. Upon request, plans must provide a list of providers that will accept the RBP, a list of providers that will accept a negotiated price above the RBP and the underlying data used to ensure an adequate number of providers who accept the RBP meet reasonable quality standards.
More employers are using RBP — should you?
According to Mercer’s survey data, in 2013, 10% of large employers (500+ employees) used reference-based pricing, and 22% were considering it. This strategy is more common among larger employers, and that’s where we’re seeing growth. Among employers with 10,000 or more employees, 15% used reference-based pricing in 2013, up from 10% in 2012. An additional 30% say they are considering it.
Why all the interest in RBP? There is huge variation in cost for some medical services from one provider to the next. Worse, most often patients don’t know how much a service will cost even when they are at the doctor’s office — they find out only when they receive an explanation of benefits (EOB) in the mail weeks after the care was provided. RBP provides an incentive to the consumer to review pricing information in advance and to select a provider accordingly. Employers typically start off with a short list of services/procedures for RBP and expand as members gain experience with the approach and learn to use tools to support decision making. Services where we see great cost variation without much variation in quality — like an MRI — are often the focus of an RPB strategy. And a side benefit of RBP is that, once it has been introduced in a community, you often see the highest-cost providers lowering their prices so they don’t lose business.
RBP is all about transparency, an issue of growing importance to both employers and employees, who, as out-of-pocket costs rise, are more interested in information on the cost of services because they may be paying for it themselves. The market is responding to the new demand. There are now several specialized vendors providing this service and most insurance companies have built (or contracted for) a tool.
This makes it easier for employers pursuing RBP to meet the requirements for providing a “reasonable method” for finding and accessing quality providers. Transparency is not just about the price. Many of the transparency tools also include access information and some type of quality indicator. A best practice would be to pair pricing transparency with medical decision support, to convey the message to employees that now that they know how much the treatment costs, they might be interested in knowing more about alternatives to consider.
Best-in-class transparency tools can also alert members to cost-saving opportunities without them ever needing to initiate a search, and even target messaging based on member searches. For example, a member who searches for information on pregnancy would receive maternity management program pop-ups. Reminders about employer-specific programs (health assessments or onsite/near-site services, for example) can be sent as well.
I will be interested to learn if employers think the most recent FAQ on “reasonable” application of RBP is supportive of medical management and consumerism techniques — or viewed as an additional constraint that makes the effort less worthwhile. For employers in the latter camp, I would encourage at least looking into transparency tools to see if they can smooth the way.
This week, all eyes are on the presidential hopefuls as the primary election season kicks into high gear. With health care on the docket as one of the key domestic policy issues of this election, it’s important for voters to know where each candidate stands, relative to the ACA and Medicare.
Our blog team put together the following summary that we share with a caveat -- these are our impressions of the candidate’s views based on what we have read in the news and seen on TV.
On the Democratic Side:
- Hillary Clinton is a proponent of the Affordable Care Act, albeit with a few tweaks that she says would reduce consumers’ out-of-pocket and prescription drug costs. For instance, she proposes having Medicare administrators negotiate with drug companies for lower prices for beneficiaries, requiring health insurers to cap out-of-pocket drug spending at $250 per month, and mandating that all plans (including employer-sponsored) provide individuals with three sick visits per year before needing to meet their deductible. She opposes any plans to privatize Medicare and she supports the state expansion of Medicaid under the ACA.
- A supporter of universal health care, Bernie Sanders thinks the ACA didn’t go far enough, creating an interesting rift in the Democratic Party. Sanders wants to expand Medicare to create a “Medicare-for-all” single-payer national health insurance. This tax-supported single-payer system would entail no premiums, deductibles or cost-sharing, and private health insurance would only exist to provide supplemental coverage. Until then, he supports the expansion and improvement of Medicaid for low-income families.
On the Republican Side:
- Ted Cruz wants to repeal the ACA (as do most of the Republican candidates) and cut the link between health insurance and employment. He also wants to expand health savings accounts and allow insurers to sell plans across state lines. But he has kept mum on what he would do to maintain the ACA’s coverage expansion, if he were to abolish the law. As for Medicare, he would raise the eligibility age and move to a premium-support system in which beneficiaries are given a fixed government contribution to buy a Medicare insurance plan; if the plan exceeds this amount, individuals would be accountable for the difference. Cruz also opposes Medicaid expansion under Obamacare.
- Donald Trump opposes both the ACA and the idea of a single-payer system. He says he would repeal the ACA and allow consumers to buy plans from insurers in any state, no matter where they live, and he supports the use of HSAs to pay for medical expenses not covered by insurance. He has said that he would preserve Medicare by strengthening the economy enough to support the program.
- Marco Rubio would like to repeal the ACA and replace it with a refundable tax credit to help people purchase health insurance, which would increase each year with a gradual reduction in the tax exclusion for employer health plans. He would also establish high-risk pools funded by the federal government to cover those with pre-existing conditions, allow insurers to sell plans across state lines, and expand HSAs to pay for medical expenses not covered by insurance. He says he would preserve traditional Medicare for current beneficiaries, but future generations would be transitioned into a defined-contribution, premium-support system. He also says he’d convert Medicaid into a capped state block grant program.
- The M.D. of the presidential hopefuls, Ben Carson advocates repealing the ACA and replacing it with health empowerment accounts (HEAs) to be given to all US citizens along with their social security numbers. Citizens would contribute to their HEAs tax-free and would be able to use the accounts to pay for medical expenses for themselves and their family members. The money is theirs, whether they change jobs or move across state lines, and would be paired with high-deductible health plans for catastrophic medical costs. In terms of Medicare, he’d give beneficiaries a fixed contribution with which to buy private health insurance, and if their plan of choice costs less than the government contribution, the remaining dollars would go straight into their HEAs (and if it costs more, the difference could come out of their HEAs). He’d also increase the Medicare eligibility age from 65 to 70, with beneficiaries able to use their HEAs for out-of-pocket expenses, deductibles, and co-pays.
- Like his Republican counterparts, Jeb Bush wants to repeal the ACA, but his plan seems to rely on the employer-based system more than the others. He says he’d offer a tax break for workers on health benefits they receive through their employers and let small businesses make tax-free contributions toward their employees’ plans. In addition, he’d provide a tax credit for catastrophic insurance plans and increase contribution limits for HSAs from $3,350 to $6,550. He’d also cap the employer tax exclusion so that employer-sponsored plans costing more than $12,000 for individuals or $30,000 for families would be taxed. He wants to privatize Medicare and provide lower government subsidies to wealthier people.
- John Kasich wants to repeal the ACA, though he expanded Medicaid in Ohio under the law as governor, and he has said that he supports coverage for pre-existing conditions. He thinks there needs to be more of an emphasis on patient-centered primary care, and he criticizes the fee-for-service system, wanting to reward value instead of volume.
We offer a few general observations about any possible changes being discussed:
- First thing to keep in mind is that more people have health insurance today than before the law was passed -- 12.7 million are enrolled in the public exchange with most getting a subsidy and an additional 7 million are covered by expanded Medicaid or CHIP. Those who favor ACA repeal need to keep in mind the challenge to make sudden any changes that would adversely impact 18 million new beneficiaries.
- From an employer perspective, over the past five years we have made benefit changes, taken on more administrative responsibilities and communication requirements, and paid significant fees to support the ACA. Several of the ACA requirements were very popular with employees -- expanded dependent eligibility to age 26 and the elimination of lifetime maximum benefits to name just two. While we might be happy to see all the ACA requirements go away, we realize some features may be hard to roll back. On the other hand, some of the candidates favor approaches that would rely even more on employer support.
- Finally, the excise tax on high-cost plans has long been the number one ACA concern for employers. The two-year delay is a step in the right direction and we are hopeful that step is actually a step closer to repeal of the excise tax provision. Stay tuned for a separate post on the lack of meaningful impact of the proposed changes in the 2017 budget.
Fasten your seat belts, it will be an interesting ride!
Mercer met with Congressional staff on June 11 to provide input on developing legislation that would modify the ACA’s 40% excise tax on high-cost plans. Mercer recently submitted comments to the IRS on how to implement the tax starting in 2018, but more fundamental reform can only be achieved through enactment of new legislation.
In our meeting, we outlined guiding principles that should provide a framework for evaluating any legislative change to the excise tax. These principles include:
- Plan value — The tax should not apply to typical plans, regardless of plan cost. Employers should not be penalized if costs are high due to factors such as geography, coverage of a high-cost population, and industry.
- Plan cost — The tax should not apply to plans that effectively control costs, regardless of actuarial value. Employers — and their employees — should continue to benefit from cost management initiatives, including health management and network/ supply-side strategies.
- Innovation — The legislation should promote programs and plan features that encourage optimal healthcare use.
- Predictability — The tax should be predictable when setting future year plan offerings or negotiating collective bargaining agreements. The calculation methodology should appropriately combine standardization and actuarial judgment.
- Simplicity — The process for determining and submitting the tax should be straightforward.
The excise tax passed as part of the ACA does not meet these objectives. We explained the benefits of legislation that would allow plans to avoid the tax by either maintaining costs below a dollar threshold (with adequate annual increases) or by satisfying a safe harbor through offering plans with an actuarial value no higher than a specified threshold. We shared Mercer survey data and other statistics illustrating the dramatic relief that could be achieved if the proposed legislation becomes law. Hill staff was keenly interested in the issues we raised and the supporting data. We will continue to share data and our perspective to support new legislation that can benefit plan sponsors.
It’s a done deal! Federal spending legislation cleared by Congress today for the President’s expected signature contains a two-year delay of the excise tax on high-cost plans. Assuming the tax does go into effect in 2020, the cost threshold will be the same indexed amounts they would have been without the delay. However, the U.S. Comptroller General will conduct a study on appropriate age and gender adjustments in consultation with NAIC.
So what does the delay mean for employers? The 2020 effective date provides “breathing room” for employers to thoughtfully plan for avoiding excise tax exposure. It’s true that there is broad support for repeal of the excise tax in Congress and many think this delay gets us one step closer to repeal. But it’s also true that if the provision is not repealed, employers that don’t prepare for it will face with tough decisions about cutting benefits to bring cost below the tax threshold.
Our research shows that more than a third of all employers currently offer a plan that is on track to trigger the tax in 2020. That’s an indication that -- with or without the excise tax -- employers still need to manage health care costs, improve quality, and engage employees to be better consumers and more accountable for their own health.
So take this extra time to consider leveraging a wide range of proven strategies, including consumer-directed health plans, total health management, and health innovations. Mercer’s latest survey found that about a fourth of employers are considering moving to a private exchange within five years. Our own exchange, Mercer Marketplace, has helped clients to not only reduce their costs but also to engage their employees in making better health care decisions with insightful education, broader health improvement solutions, and better decision-support tools.
And, just as a quick reminder, the ACA reporting deadline is fast approaching. But don’t let that stop you from celebrating this piece of good news. I know I am!
Traditionally, employers have not thought of opt-out credits as increasing the cost of employee coverage. But in a recent HIPAA FAQ unrelated to affordability, regulators said that cash payments — or opt-outs — offered only to employees likely to generate high claims costs violate HIPAA’s prohibition against discrimination on the basis of health status.
The regulators reasoned that when an employer offers these cash opt-out incentives, the targeted “unhealthy” employees who enroll in the employer’s group health plan are effectively paying more than other “healthy” employees who enroll without losing any cash payment. While all employees ostensibly pay the same cost for coverage under the plan’s terms, the targeted employees’ true cost is the stated premium contribution plus the cash opt-out payment they forgo by enrolling in the employer’s health plan. Clear as mud, right?
Some employers offer a cash payment more broadly to all employees who waive the employer’s group health plan. If the reasoning of the high-cost claims opt-out provision applies generally to opt-outs, the required contribution of any employee eligible for an opt-out would be the premium contribution plus the opt-out amount — raising the required employee contribution by the amount of the opt-out.
Admittedly, this could be a stretch. For now, it is unclear whether the same analysis applies when calculating the affordability of coverage under ACA’s play-or-pay requirements, individual mandate, and eligibility standards for public exchange subsidies. To date, IRS has not indicated that it will apply this HIPAA opt-out analysis to affordability calculations. Because of the lack of direct IRS guidance on this opt-out issue as it applies to affordability — and because employers have not traditionally thought of opt-outs as increasing the cost of employee coverage — it’s not clear that IRS would require employers to include opt-outs in the cost of employee coverage without addressing this issue explicitly.
But to be on the safe side, employers should consider whether their opt-out credits may adversely affect the affordability of their coverage. If you have an opt-out design, you will want to monitor future guidance and review your plan’s affordability with legal counsel.
Administrative burden tops list of employers concerns
For the first time since the law was passed, the administrative burden of ACA compliance surpassed the excise tax as the top concern for employers in Mercer’s seventh health care reform survey, conducted in January of this year. Since then, the government has issued the final regulations, draft forms, and instructions to comply with the 6055/6056 reporting requirements. We polled US employers about the requirements during a Mercer Select web briefing this week. More than half of them said they don’t yet know how they will comply; a third plan to complete the reporting in-house (at least for now), and the rest will rely on their benefits administration vendor, payroll vendor, or other third party. The biggest employer concerns about the reporting requirements were getting a system in place for 2015 and obtaining the required data from various sources. The focus of the web briefing was on reporting in 2016 for 2015.
But wait…2014 may not be an EZ tax season
H&R Block is busy training tax preparers for the new complexities of filing for 2014. The upcoming tax season could be hectic for employers, too. All American income tax filers will be required to check a box on their 1040 indicating whether they had minimum essential coverage (MEC) in 2014 to show they complied with the ACA individual mandate. Instructions for what to do if you are not able to check the box have not yet been released.
- Those that received an advanced premium tax credit from a public exchange or want to claim the credit with their filing will have to ditch the Form 1040-EZ for the longer 1040 or 1040A and attach Form 8962 to verify their eligibility for the credit.
- Those who didn’t have MEC and believe they are exempt from the individual mandate will have to attach Form 8965 to claim the exemption. A potential reason for exemption is that affordable coverage wasn’t available to them. There have been several news stories recently that detail the complexities of filing for an exemption with the IRS or through healthcare.gov.
Those filing either form who were eligible for employer-sponsored coverage will need to know whether their employer coverage was affordable and provided minimum value.
Let’s be honest, most of your employees aren’t going to remember that you gave them information about MEC and minimum value on page 4 of their Summary of Benefits and Coverage (SBC). And, they aren’t going to remember the 2014 monthly premium for their lowest-cost health insurance option for purposes of the affordability calculation. The vast majority of your employees are not even going to know they need this information until they begin to file their taxes.
Can you hear the phone ringing?
I recommend that you include a reminder in your employee W-2 communication that advises employees that they will have to provide information on their health coverage in 2014 when they file their taxes. You should remind them that if they were eligible for benefits, they were offered coverage that met the MEC requirements and provide the monthly amount of the lowest-cost premium for employee-only coverage — and/or direct them to where they can find the SBC and 2014 premium rates. Having this information, along with eligibility definitions, posted somewhere that is easily accessible by employees during the upcoming tax season, could save you a lot of phone calls.
It’s no surprise that administrative burden overwhelmingly tops the list of ACA concerns expressed by employers in Mercer’s recent survey, Health Care Reform in 2014: Are We There Yet? About a third of them say that complying with the new requirements is a very significant concern; another 44% say it’s a significant concern. One reason for that is the constant stream of FAQ, draft regulations, final regulations, changes, and delays that employers must factor into efforts to comply with all the requirements of the ACA.
These numbers play out in a very tangible way in our day-to-day conversations with clients. It’s not at all unusual to learn that an employer has needed to add staff to help maintain ACA compliance — or that the costs associated with the development, printing, and distribution of the required communications have added significant expense to already stretched budgets.
Four issues in particular seem to be the source of much hand-wringing among employers.
1. All those fees!
The ACA now requires health plan sponsors and issuers to pay fees to fund two programs: the Patient Centered Outcomes Research Institute (PCORI) fee, designed to fund research on the use of comparative effectiveness in medical practice; and the Transitional Reinsurance Program (TRP) fee, designed to stabilize the individual insurance marketplace and provide revenue to the federal government.
Both PCORI and TRP fees apply to similar issuers and plans, and are calculated similarly based on the number of covered lives. However, they differ in which plans pay which type of fee, the amounts and due dates, who makes the payments, the methods used, and the permitted payment conduit (ERISA versus pass-through) — all of which add a high level of complexity to the process on top of the additional expense.
The majority of employers plan to share the cost of PCORI and TRP with employees, but smaller percentages will either add the full cost of fees to the employee contribution or simply pay the fees themselves.
2. Additional employee communications
2013 was the first year in which employers were required to develop and distribute the ACA’s new Summary of Benefits Coverage (SBC), designed to provide employees with standardized information they can use to compare plans and make decisions. This may be among the biggest communication challenges for employers. The SBC is an additional requirement (it does not replace any other communications), and it must meet very specific criteria for length, font size, required examples, etc. Employers also were required to provide all employees with an additional communication — the Exchange Notice — regarding the new public program.
3. Handling minimum loss ratio (MLR) rebates
Insurers must spend a minimum percentage of premiums collected on medical claims — 85% for the large-group market, 80% for small-group and individual markets. If they fall short of this minimum, insurers must provide a rebate to policyholders. Complicating the process for employers is their potential responsibility for allocating the pro rata amount of the rebate to each employee who is covered under the sponsored health plan that generated the rebate — a complicated and time-consuming task with a short timeframe.
According to the Center for Consumer Information and Oversight, MLR rebates in the US for all markets combined totaled slightly more than $504 million in 2012. The 2012 rebates were distributed in 2013.
4. More in 2015 — Tracking and reporting requirements
Tracking employee hours — both to determine eligibility for the 30-hour requirement and to support reporting requirements — is proving to be a large and time-consuming slice of the administration pie, particularly among companies with high populations of part-time, contract, and seasonal employees for whom variable “look-backs” can be complicated and tedious.
One of the most stifling issues for employers in meeting minimum essential coverage (MEC) and employer shared responsibility (ESR) reporting requirements is locating and aggregating the necessary HR, payroll, and health plan data, which are often in disparate locations. According to the recent ERIC Survey of Large Employers on ACA Reporting, 28% of employers say that integrating data from two or more different systems is their greatest first-year challenge in meeting the ACA’s tracking and reporting requirements.
With reporting guidance and tax forms for the 2015 plan year recently issued (and the first reports having deadlines in Q1 of 2016), employers need to be planning now to meet the ACA’s complicated requirements. We’ll go into more detail about reporting in my post next week.
While phasing in the ACA requirements over time was intended to make complying easier, it feels as if we’ll never be finished with it! As we move closer to yet another implementation date, employers should carefully consider whether they are tackling ACA’s added administrative responsibilities in the most efficient and cost-effective way possible — not only to maximize compliance, but also to minimize headaches.