The thought of reporting for the Patient Protection and Affordable Care Act (Affordable Care Act or aca) used to bring about feelings of perplexity and confusion. Wading through the aca’s reporting requirements held little more than the hope of avoiding a future audit.
Every seminar presented information in similar fashion: “here’s what we know today, but that could change soon,” “do your best and keep good records,” or “it’s not a matter of if you’ll get audited, but when.”
Realizing that even my best efforts could still likely result in an IRS audit only further alerted me to the importance of properly coding employees and accurately reporting this new, highly complicated federal tax document.
As a CFO, I began to identify the little I knew, highlighted information I needed to shore up, and sought out expert assistance to fill in the gaps. This article is a result of those efforts and aims to provide a practical guide to coding lines 14 and 16 in Part II: Employee Offer of Coverage section of Form 1095-C for companies that are fully insured. (If your company is required to produce 1094s and/or track dependents in “Part III: Covered Individuals” of the 1095 or produce additional documents such as a 1094-C, then you will still need support on those aspects of your 1095 coding.)
While the ultimate fate of the ACA is yet unknown, reporting deadlines are fast approaching. Your company is responsible for accurately presenting the data on employee forms and to the IRS. In the end, the information submitted on the form either keeps the feds out of your office or invites them in for a look around.
Throughout this article, you will find coding diagrams created by Howard Cox that illustrate various scenarios for workers who are union, part-time, seasonal, safe harbor, etc.
The Bare Necessities
According to IRS minimum standards, Applicable Large Employers (ALEs) – or, employers with 50 or more full-time equivalent employees – must offer health coverage to employees who qualify. Seasonal employees, part-time employees, and interns who work fewer than 30 hours per week on average or less than 130 hours per month do not qualify for health coverage; the ACA has separate provisions to account for those employees.
For everyone else, ALEs must offer health care in each month an employee is eligible (i.e., each month the employee is not a seasonal or part-time employee as defined by the ACA). Such offerings must be considered minimum essential coverage (MEC) and also meet minimum value and affordability criteria.
If your company offers a group plan, it’s likely that it meets the MEC standard. A plan provides minimum value if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. Your carrier will provide an Actuarial Value rating for fully insured plans; a third-party administrator can provide this calculation for self-funded plans.
If an employee’s share of the premium for employer-provided coverage costs the employee more than 9.66% of that employee’s annual household income, then coverage is not considered affordable for that employee.
Because employers generally will not know employees’ household incomes, employers can take advantage of up to three optional affordability safe harbors based on information they already have available:
- Form W-2 wages
- Rate of pay
- Federal poverty line (FPL)
If an employer meets the requirements of any of these safe harbors, then the offer of coverage will be deemed affordable for purposes of the Employer Shared Responsibility Provisions regardless of whether it was affordable to the employee for purposes of the premium tax credit.
An employer may use one or more of the safe harbors only if its full-time employees and their dependents are offered the opportunity to enroll in MEC under an eligible employer-sponsored plan that provides minimum value for the self-only coverage offered to the employee.
An employer may choose to use one or more of the safe harbors for all of its employees or for any reasonable category of employees, provided it does so uniformly and consistently for all employees in a category. If an employer offers multiple health care coverage options, then the affordability test applies to the lowest-cost, self-only option available to the employee that also meets the minimum value requirement.
The Form W-2 wages safe harbor is generally based on the amount of wages paid to the employee that are reported in Box 1 of that employee’s Form W-2. The rate of pay safe harbor is generally based on the employee’s rate of pay at the beginning of the coverage period, with adjustments permitted for an hourly employee only if the rate of pay decreases. The FPL safe harbor generally treats coverage as affordable if the employee contribution for the year does not exceed 9.66% of the FPL for a single individual for plan years beginning in 2017 (FPL is $11,880) and 9.56% for plan years beginning in 2018 (FPL is $12,060).