Determining Minimum Value and Affordability

Source: United Benefit Advisors, LLC

The IRS has released final regulations that address how wellness incentives or penalties, contributions to a health reimbursement arrangement, and employer contributions to a Section 125 plan are applied to determine affordability. While these regulations were issued in connection with the individual shared responsibility requirement (also called the individual mandate), the agencies said that they expect to use the same approach when determining affordability for purposes of eligibility for the premium tax credit and the employer-shared responsibility/play or pay requirements.

The regulations provide that when deciding if the employee’s share of the premium is affordable:

  • Wellness incentives or surcharges, except for a non-smoking incentive, may not be considered. In other words, the premium for non-smokers will be used to determine affordability (even for smokers). Any other type of wellness incentive must be disregarded, even if the employee has earned one.
  • If an employer makes contributions to a health reimbursement arrangement (HRA) that the employee may use to pay premiums, the employee’s cost of coverage may be reduced by the employer’s current year contribution to the HRA, provided that the planned employer contribution is publicized before the enrollment deadline.
  • If an employer makes flex contributions through a Section 125 cafeteria plan, the employee’s required contribution may be reduced by flex contributions that (1) may not be taken as a taxable benefit, (2) may be used to pay for minimum essential coverage, and (3) may only be used to pay for medical care.

Because an employer’s contribution to a health savings account (HSA) generally may not be used to pay premiums, employer contributions to an HSA may not be used when determining affordability. For a complete checklist, download UBA's PPACA Advisor, “Preparing for 2015 - Key PPACA Requirements".


IRS drafts instructions for ACA reporting requirements

Originally posted September 11, 2014 by Keith R. McMurdy on

They promised they would be coming and now they have. On Aug. 28, the Internal Revenue Service issued draft instructions for Forms 1094-C and 1095-C and Forms 1094-B and 1095-B, which I provided in my July 31 entry.

These forms were provided in draft format and they are used to satisfy Affordable Care Act’s “information reporting requirements.” We also got draft instructions for Form 1095-A that relates to the statement about the Health Insurance Exchange Marketplace. The IRS has indicated that it will finalize the forms and instructions in 2014.  On top of that, they issued some FAQs that address the reporting requirements.

As a starting point, the FAQs provide that some short-term penalty relief will be available for incomplete or incorrect information returns that are filed (or employee statements provided to employees) in 2016 for coverage offered, or not offered, in 2015. Under this relief, the IRS will not impose penalties on employers that can demonstrate that they made good faith efforts to comply with the information reporting requirements. This relief applies to returns and statements filed and furnished in 2016 to report offers of coverage in 2015 for incorrect or incomplete information reported on the return or statement, but the relief is not available if you fail to file. You have to show a good faith effort to comply so you cannot simply not file anything an expect relief.

With respect to the instructions themselves, to say that they are lengthy is an understatement.  Employers should read them in detail to understand their obligations. However, some key provisions that help in compliance include:

  • Clarification that employers must file Forms 1095-C and 1094-C with the IRS, and provide a copy of Form 1095-C to employees.
  • A statement that, as noted above, forms 1095-C and 1094-C information returns are not required for 2014. Actual filings are not required until 2016 for the 2015 calendar year but employers may voluntarily file these forms in 2015 for 2014.  If by chance an employer does choose to voluntarily files in 2015 for the 2014 year, penalties for the employer mandate payments will not be assessed for 2014.
  • Establishment of specific dues dates for Forms 1095-C and 1094-C information returns.  They must be filed by February 28 (for paper filings), or March 31 (for electronic filings) of the year following the calendar year to which the return relates.
  • Clarification that a Form 1094-C must be attached to any Forms 1095-C filed by an employer. Each employer must file one 1094-C that reports aggregate employer-level data for all the employer’s full-time employees, which is referred to as the “authoritative transmittal” (and denoted accordingly on Line 19 of the Form 1094-C). Only one authoritative transmittal may be filed for each employer.
  • Employers also must provide a Form 1095-C to each full-time employee by Jan. 31 of the year after the year to which the form relates (so that would be Jan. 31, 2016 for the 2015 reporting year). Incidentally, employee statements must be furnished to individuals in paper format by mail, unless the individual affirmatively consents to receiving the statement electronically.

As with the forms, the instructions are in draft format and subject to change and finalization.  However, between the draft forms and the draft instructions, employers should now be able to ascertain generally what is required of them in reporting. Even though the mandatory reporting requirement does not completely kick in until after 2015, employers should spend some time reviewing these requirements with their plan professionals, preferably sooner rather than later, to get a sense of what data they will have to collect and how who has responsibility for making sure the information is accurate.


IRS releases draft instructions for ACA reporting forms

Originally posted August 29, 2014 by Andrea Davis on

Forms 1094-B and 1095-B are used by organizations that are not reporting to the IRS as large employers – insurers and sponsors of multiemployer plans, for example. Forms 1094-C and 1095-C, meanwhile, are used by organizations that are subject to the employer mandate.

“The instructions are voluminous and reflect the complexity behind the information, particularly that employers are going to have to provide,” says Amy Bergner, managing director, human resource solutions at PricewaterhouseCoopers in Washington, DC.

The IRS released the draft forms a few weeks ago but without draft instructions, “it was difficult to tell exactly what employers and insurers were going to have to do,” she notes. “Now we have these draft instructions that really walk through what’s behind all of the reporting.

Bergner says employers should review the draft instructions as soon as possible with all third-party providers who help them with tax reporting. “Even though these reports are not filed with the IRS or sent to employees until early in 2016, employers have to be capturing the information on a monthly basis starting in January 2015,” she says.

The purpose of the forms is three-fold:

1. When individuals file their individual tax returns, they’re going to have to report whether or not they have health insurance as required by the ACA’s individual mandate. The IRS can compare what the individual is reporting with what the employer is reporting.

2. The IRS can double check whether people who have received federal government subsidies to buy insurance on the exchanges were actually entitled to it. People who are offered employer-sponsored coverage are not entitled to the subsidy.

3. The IRS can enforce the employer mandate, which requires employers with 50 or more full-time employees to offer health insurance.

“The instructions include many of the complicated and detailed rules about the employer mandate, details usually reserved for regulations or other technical guidance,” says Bergner. “We expect that many employers and insurers will need assistance decoding the instructions and the underlying rules to be able to ultimately provide timely and accurate reports.”

IRS Issues Drafts of Individual Responsibility Reporting Forms

Originally posted July 31, 2014 on

In order for the IRS to verify that individuals and employers are meeting their shared responsibility obligations, and that individuals who request premium tax credits are entitled to them, employers and insurers will be required to provide reporting on the health coverage they offer. Reporting will first be due early in 2016, based on coverage in 2015.

On July 24, 2014, the IRS published drafts of several of the forms that will be used to provide the required reporting. Instructions were not released with the draft forms, so some questions remain unanswered. The IRS has said that it will issue drafts of the instructions in August and that the final forms and instructions will be available by the end of 2014.

Generally speaking, an employer will not have any reporting requirement if it has fewer than 50 full-time and full-time equivalent employees in its controlled group and it sponsors a fully insured medical plan. All other employers will have at least some reporting. This appears to include employers with 50 to 99 employees for 2015 -- even though the employer-shared responsibility requirement has been delayed until 2016 for most employers in this group, reporting is still needed to help determine whether individual employees owe penalties or are eligible for premium subsidies.

Employers with 50 or more full-time or full-time equivalent employees in their controlled group - whether the coverage offered is fully insured or self-funded - will need to complete both Part I and Part II of IRS Form 1095-C. This form will be required for each employee, regardless of whether the employee is eligible for medical coverage. Part I includes basic identifying information. To complete Part I, the employer will need:

  • The name, address, and Social Security number of the employee
  • The name, address, employer identification number (EIN) and a contact telephone number for the employer (the contact telephone number can be that of a third party)

Part II will be used to determine whether minimum essential, minimum value and affordable coverage was offered and accepted. This data will be used to determine whether the employer owes penalties for not offering minimum essential coverage (these are sometimes referred as the "A" penalty or the $2,000 penalty) or for not offering affordable, minimum value coverage (these are sometimes referred to as the "B" penalty or the $3,000 penalty) and if the employee is eligible for premium subsidies.

The employer will use one of several codes to report whether it offered coverage to the employee, and the extent of the coverage it offered. If coverage did not vary during the calendar year, the employer may simply use one code to report all 12 months. If coverage varied during the year, a code is needed for each month. (Note that this reporting is made on a calendar year basis, even if the employer has a non-calendar year plan.)

The employer also will report the employee's share of the lowest cost monthly premium for self-only minimum value coverage for which the employee is eligible (not the premium for the coverage the employee elected since the contribution amount which determines affordability is the lowest cost premium for self-only minimum value coverage).

The employer also will enter codes that the IRS will use when determining if a penalty is owed. Those codes address whether the employee was eligible for coverage during the month, including whether the employee was employed, classified as full-time, in a waiting period or covered. If the employee was covered during the month, the employer will report whether coverage was affordable and which affordability safe harbor was used.

In addition, employers with self-funded plans will complete Part III of Form 1095-C. Part III information will be used to determine whether the employee's family met its requirement to have minimum essential coverage. To complete Part III, the employer will need:

  • The name and Social Security number (or date of birth if a Social Security number is not available) of each covered spouse and dependent
  • The calendar months each spouse or dependent child was covered (if the person was covered for the whole year, that can be reported rather than month by month reporting)

Information that is similar to the information provided on Part III of Form 1095-C will be provided by the insurer to the employee using IRS Form 1095-B. Form 1095-B will report whether the employee and the employee's spouse and children had minimum essential coverage for each month. This means that an employee who works for a mid-size or large employer that provides coverage on a fully insured basis will receive two forms: Form 1095-B from the insurer and Form 1095-C from the employer. Form 1095-B also will include the origin of the policy (presumably, whether coverage is through an employer, individual insurance, a multiemployer plan, Medicare, Medicaid or the Marketplace), the name, address, and EIN of any employer sponsoring the plan and the Small Business Health Options Program (SHOP) Marketplace unique identifier if coverage is provided through the SHOP.

Employers with 50 full-time and full-time equivalent employees in their controlled group also will need to file IRS Form 1094-C, with a copy of the Form 1095-C it issued to each employee. Employers that are not part of a controlled or affiliated service group (called an ALE Aggregated Group on the form) will complete Parts I, II and III of the form. To complete these parts, the employer will report:

  • The employer's name, address, EIN and the name and phone number of a contact person (who does not need to be an employee)
  • The total number of Forms 1095-C submitted with the transmittal form
  • Whether it is part of an ALE Aggregated Group (i.e., a controlled or affiliated service group)
  • Whether the employer is exempt from some or all reporting or penalties because of its size or offer of coverage to a very high percentage of individuals
  • On a month by month basis (with some ability to report for the full year if nothing changes):
  • Whether minimum essential coverage was offered
  • The total number of full-time employees of that employer
  • The total employee count of that employer
  • Whether the employer qualifies for transition relief either because it had 50 to 99 employees or because it had more than 100 employees, but is a non-calendar year plan

Employers that are part of a controlled or affiliated service group also must enter the name and EIN of all other employers that were part of the group during the calendar year. Each employer in a controlled or affiliated service group must file a separate report, although one member of the controlled group may complete the form on behalf of other members. In certain circumstances, government plans may report on a single form through a "designated government entity."

In summary, the reporting requirements are:




Fully Insured
< 50 FTEs


Fully Insured
50 to 99 FTEs


Fully Insured
100+ FTEs


<50 FTEs


50 to 99 FTEs


100+ FTEs


Form(s) to employees




1095-B/1095-C (Parts I and II only)


1095-B/1095-C (Parts I and II only)


1095-C (Parts I, III and line 14 only)


1095-C (all Parts)


1095-C (all Parts)


Filed by




Insurer/Plan Sponsor


Insurer/Plan Sponsor








Form(s) to IRS




1094-B/1094-C (with copies of all 1095s)


1094-B/1094-C (with copies of all 1095s)


1094-C (with copies of all 1095-Cs)


1094-C (with copies of all 1095-Cs)


1094-C (with copies of all 1095-Cs)


Filed by




Insurer/Plan Sponsor


Insurer/Plan Sponsor








Note: In this chart "FTE" refers to full-time or full-time equivalent employees.

The reporting will occur with the same timing and process as W-2 and W-3 reporting. The individual will receive a Form 1095 that provides information about his or her coverage. The individual's report will be due on January 31 following the calendar year that is being reported. The employer will provide a "roll-up" report using IRS Form 1094 and copies of the individual 1095 forms. The employer report will be due by February 28 (or March 31 if filed electronically). Employers will be required to file electronically if they issue 250 or more forms. Reporting must be done on a calendar year basis, even if the plan or policy operates on a non-calendar year basis. Because January 31, 2016, and February 28, 2016, are Sundays, employers and insurers will have until February 1, 2016, to provide the first Forms 1095 and until March 1, 2016, to file the first Form 1094 if Form 1094 is filed using paper.

Form 1095 only needs to be provided to the named insured. Employers that mail the form may send it with the W-2 form. If the form is mailed to the employee's last known permanent address and it is returned, the employer does not need to resend the form. Employers may provide the form electronically to the employee if the employee provides a consent that meets certain requirements. If the form is sent electronically and it is returned, the employer must try to obtain a current electronic address. If that is not possible, the notice must be mailed or hand-delivered within 30 days.

Employers concerned about maintaining and transmitting Social Security numbers may use truncated numbers (e.g., XXX-XX-1234). Substitute forms will be permitted.

Employers that offer particularly generous coverage may use alternative, simplified reporting instead of the "general" reporting explained above. Depending on the situation, the employer may be able to use alternative reporting for some employees even though it must use the general reporting method for others. The employer also may use different alternative reporting methods for different groups of employees. Three alternative methods will be available for reporting on coverage offered in 2015:

  1. If the employer makes a "qualifying offer" for each month in the calendar year, it can provide a certification of coverage instead of some of the demographic reporting and provide streamlined reporting to the covered employees. If the employee was not eligible for the full year, this alternative method may not be used for that employee. A "qualifying offer" is an offer that meets all of these requirements:
    -- Is offered to the employee and to any spouse and dependent children
    -- Provides minimum value
    -- Has an employee contribution for single coverage that is less than
    9.5% of the federal poverty level in the 48 contiguous states (which
    would be a maximum contribution for 2014 of $92.38 per month)
  2. If the employer offers affordable, minimum value coverage to at least 98% of its total employees (regardless of whether they are full-time or part-time) it does not need to report whether an employee is full-time and it does not need to provide a count of its full-time employees. However, it will need to provide all of the other information required under the general method, and if an employee requests a premium tax credit, it will need to respond to an IRS inquiry about the employee's work and coverage status.
  3. For 2015 only, an employer that has provided a "qualifying offer" to 95% of its full-time employees, their spouses, and dependents may simply provide each of its full-time employees with a statement informing the covered employees that they will not be eligible for premium tax credits (if the qualifying offer was made for each of the 12 months of the year), or that they may be eligible for premium tax credits for any months in which a qualifying offer was not made. The statement must provide contact information for the employer. The employer transmittal will need to provide identifying information for the covered employees and affirmation that a qualifying offer was made.

Even though these forms are not final, employers may want to study them as they begin to determine whether they are currently collecting, and will be able to retrieve, the information needed to complete the forms.


"Minimum essential" coverage is basic medical coverage. Coverage does not need to include the 10 essential health benefits to be considered minimum essential coverage.

"Minimum value" coverage is coverage that has an actuarial value of at least 60%.

A plan sponsor generally is the employer for employer-provided coverage and the board of trustees or committee for a multiemployer plan.

The regulations acknowledge the difficulties that reporting may present for employers with employees covered by multiemployer plans. The plan administrator of the multiemployer plan may complete Form 1095-B for its members and provide it to the employer to transmit with the forms for employees not covered by the multiemployer plan. The employer is ultimately responsible for the filing. Additional details are to be provided in the instructions when they become available.

Employees who receive a premium tax credit/subsidy will file IRS Form 8962 with their individual federal income tax return. Coverage that is obtained through a Marketplace, except for SHOP coverage, will be reported on IRS Form 1095-A.




IRS releases draft of employer reporting form for health reform law compliance

Originally post July 25, 2014 by Matt Dunning on

The Internal Revenue Service has issued draft versions of the reporting forms most employers will begin using next year to show that their group health insurance plans comply with the health care reform law.

The long-awaited draft forms, posted late Thursday afternoon to the IRS' website, are the first practical application of employers' health care coverage and enrollment reporting obligations under the Patient Protection and Affordable Care Act since the regulations were finalized in March.

The forms are the primary mechanism through which the government intends to enforce the health care reform law's minimum essential coverage and shared responsibility requirements for employers.

Beginning in 2015, employers with at least 100 full-time employees will be required to certify that benefits-eligible employees and their dependents have been offered minimum essential coverage and that their employees' contributions to their premiums comply with cost-sharing limits established under the reform law. Smaller employers with 50-99 full-time employees are required to begin reporting in 2016.

Additionally, self-insured employers will be required to submit documentation to ensure compliance with minimum essential coverage requirements under the reform law's individual coverage mandate.

“In accordance with the IRS' normal process, these draft forms are being provided to help stakeholders, including employers, tax professionals and software providers, prepare for these new reporting provisions and to invite comments from them,” the IRS said in a statement released Thursday.

The IRS said it expects to publish draft instructions for completing the reporting forms by late August and that both the forms and the instructions would be finalized later this year.

Last year, the Obama administration announced it would postpone implementation of employers' minimum essential coverage and shared responsibility obligations under the reform law for one year, largely due to widespread complaints about the complexity of the reporting requirements.

Though several months have passed since the administration issued a simplified set of information reporting rules, many employers have delayed preparations for meeting the requirements until the forms and instructions are available for review, said Richard Stover, a principal with Buck Consultants at Xerox in Secaucus, New Jersey.

“A lot of employers really haven't been doing anything about reporting requirements, even with the final regulations in place, because they were waiting for these forms,” Mr. Stover said. “This is something they've been anxious to see.”

Appeals court nixes subsidies for HHS exchange users

Originally posted July 22, 2014 by Allison Bell on

A three-judge panel at the D.C. Circuit Court of Appeals has issued a decision that could block efforts to expand access to private health coverage in states that decline to set up state-based insurance exchanges.

The judges ruled 2-1 in Jacqueline Halbig et al. vs. Sylvia Mathews Burwell et al. (Case Number 14-5018) that the Internal Revenue Service (IRS) has no authority under the Patient Protection and Affordable Care Act (PPACA) to provide premium tax credit subsidies for users of the PPACA public exchanges run by the U.S. Department of Health and Human Services (HHS).

The subsidies have helped cut the amount QHP buyers pay out-of-pocket for premiums to an average of less than $50 per month.

PPACA created a premium tax credit subsidy for people who buy qualified health plan (QHP) coverage through the exchanges by adding Section 36B to the Internal Revenue Code (IRC).

PPACA lets HHS set up public exchanges in states that decline to set up their own exchanges. IRC Section 36B talks about providing credits to users of state-based exchanges and makes no mention of any credits to be provided for people who buy QHP coverage through the HHS-run exchanges, Circuit Judge Thomas Griffith writes in an opinion for the majority.

"The fact is that the legislative record provides little indication one way or the other of congressional intent, but the statutory text does," Griffith writes. "Section 36B plainly makes subsidies available only on exchanges established by states. And in the absence of any contrary indications, that text is conclusive evidence of Congress’s intent."

Griffith notes that Congress explicitly imposed some key PPACA commercial health insurance provisions, such as guaranteed issue and community rating requirements, on federal territories without providing full exchange subsidy funding for the territories.

PPACA implements some health insurance requirements, such as the community rating requirements, by making changes to the federal Public Health Services Act. HHS last week decided that, because the territories are not going to receive full PPACA expansion funding, the Public Health Services Act excludes territories from its definition of "state," and the PPACA insurance requirements seem to be destabilizing the territories' health insurance markets, the territories can be exempt from the PPACA rules that were set by changing the Public Health Services Act.

Treasury issues final rules regarding longevity annuities

Originally posted July 1, 2014 by Daniel Williams on

Good news on the retirement front.

Today, the U.S. Department of the Treasury and the Internal Revenue Service issued final rules regarding longevity annuities.

According to the ruling, "these regulations make longevity annuities accessible to the 401(k) and IRA markets, expanding the availability of retirement income options as an increasing number of Americans reach retirement age."

In commenting on the ruling, J. Mark Iwry, a Senior Advisor to the Secretary of the Treasury and Deputy Assistant Secretary for Retirement and Health Policy, said:  “As boomers approach retirement and life expectancies increase, longevity income annuities can be an important option to help Americans plan for retirement and ensure they have a regular stream of income for as long as they live.”

Cathy Weatherford, president and CEO of IRI weighed in on the ruling: “The availability of longevity annuities in workplace plans and IRAs will facilitate access to a steady stream of guaranteed income throughout a retiree’s later years and help Americans enhance their retirement security at a time when they are most vulnerable to outliving their financial assets or facing reduced standards of living."

Subsidies May Be Too High Or Low For Some Who Got Coverage

Originally posted May 19, 2014 on

More than a million Americans listed incomes on their health insurance applications that differ significantly from those on file with the Internal Revenue Service and therefore may be getting subsidies that are too high or low, The Washington Post says. Other media outlets report that states can decide whether to carry out a key part of the health law's small business exchanges for 2015 and that civil fines of up to $250,000 may be imposed on those who knowingly provide false information to get a subsidy.

The Washington Post: Federal Health-Care Subsidies May Be Too High Or Too Low For More Than 1 Million Americans

The government may be paying incorrect subsidies to more than 1 million Americans for their health plans in the new federal insurance marketplace and has been unable so far to fix the errors, according to internal documents and three people familiar with the situation. The problem means that potentially hundreds of thousands of people are receiving bigger subsidies than they deserve. They are part of a large group of Americans who listed incomes on their insurance applications that differ significantly — either too low or too high — from those on file with the Internal Revenue Service, documents show (Goldstein and Somashekhar, 5/16).

The Wall Street Journal: States To Decide On Key Part Of Small-Business Health Exchanges

The Obama administration said Friday it would let states decide whether to implement a key part of the health law's small-business exchanges next year, extending an earlier delay. The Department of Health and Human Services said in rules released Friday that it would be up to state insurance commissioners to decide whether employees at small businesses using the health-insurance exchanges could choose from a range of plans or be limited to just one selected by their employer (Radnofsky, 5/16).

The Associated Press: $250K Fine For Lying On Health Insurance Forms

Lying to the federal health insurance man could cost you dearly. The Obama administration Friday spelled out civil fines of up to $250,000 for knowingly and willfully providing false information to get taxpayer-subsidized coverage under the new health care law (5/16).

The Hill:  HHS Opens Door To Extra Funds For Insurers

Health insurance companies can count on funds from the government if ObamaCare's risk corridor program does not sufficiently cover losses that are higher than expected this year.  This news was published in regulations Friday outlining how the law's health insurance exchanges will operate in 2015 (Viebeck, 5/16).

The Fiscal Times: Senators on Botched Obamacare Websites: You Break It, You Bought It

Republican senators are demanding answers from the Obama administration on the handful of failed state exchange websites that have cost taxpayers literally billions of dollars. Some even say that the states should reimburse the government for the cost of these exchange failures. So far, at least four largely inoperable state websites – in Massachusetts, Maryland, Nevada and Oregon – have cost the federal government $4 billion. That number is expected to rise as the states spend more money to replace or rebuild the bad sites (Ehley, 5/16).