Compliance

Are You Fully Prepared to Report?

Beginning on January 1, 2015, all employers must maintain and identify, via a mandatory reporting process, detailed information about the medical coverage they offer to employees. The final regulations published in the Federal Register on March 10, 2014, discussed what would be required under the Internal Revenue Code Sections 6055 and 6056.

There are two distinct sets of reporting requirements to help the Internal Revenue Service (IRS) administer compliance with the employer and individual mandates – the Large Employer Reporting and Minimum Essential Coverage (MEC) Reporting requirements. It’s important to understand the impacts of these responsibilities because they vary based on group plan size and how plans are insured or funded.

Large Employer Reporting – all applicable large employers must report to the IRS on the medical coverage they offer in compliance with the employer mandate. The reporting is due annually starting in 2016 on 2015 coverage.

Minimum Essential Coverage (MEC) Reporting – all insurers of health plans offering minimum essential coverage must report on all individuals covered under these plans. Among other things, this information will help the IRS confirm the reported individuals are compliant with the individual mandate.

Insurers and employers of self-insured medical plans must report annually on every covered individual, including dependents, starting in 2016 on 2015 coverage. The IRS has extended filing deadlines for 2015 coverage, which were originally aligned with other tax-filing documentation. The original deadlines will remain for reporting information on 2016 health coverage, and beyond.

To ensure the reporting includes identifying data for the IRS, these reporting entities must make “reasonable attempts” to capture social security numbers (SSNs) for all covered individuals. If not provided during enrollment, a written communication must be sent to the “responsible person” who may provide the missing SSN information. In other words, the covered employee would receive the request for missing SSNs of any dependents.

6055 and 6056 Requirements

IRS Code Section 6055 requires employers who administer self-funded plans and insurers managing fully insured plans to report information about the organization providing coverage, including company contact information and a detailed list of employees and the months each was covered during the applicable calendar year.

IRS Code Section 6056 requires employers to report information about the employer offering coverage and a full list of full-time employees, the coverage offered to each, by month, including the cost of coverage. Information about the employee’s covered dependents and additional information is required with the use of indicator codes.

Employers who are self-funded will be required to file both forms, while those who are fully insured will only have to file the form applicable to Section 6056. Any employer who offers both fully insured and self-insured qualified plans to all employees or a subsection of employees must be sure to report appropriately.

General Reporting Requirement

The IRS general reporting requirement includes:

• detailed information on each employee, for each calendar month;
• the total number of full-time employees;
• name, address, and Social Security Number of each full-time employee;
• whether the coverage offered to that employee was Minimum Essential Coverage;
• whether the coverage satisfied the Minimum Value requirement;
• whether it was affordable and how much the employees was required to pay; and
• whether the coverage was offered to all full-time employees and their dependents.

All employers deemed as “Applicably Large” (more than 100 FTE employees in 2015 and more than 50 FTE employees in 2016) must file these returns annually to the IRS and must provide annual statements to their full-time employees. The employee statements are due every January 31, in the same manner as Form W-2. The federal returns must be filed with the IRS by February 28 (or March 31 if filed electronically) for the applicable reporting year, which is always on the calendar, not on the employer plan year.

While the final regulations are specific to the requirements, we wait for form templates and instructions to be released to begin the “build” process. Current HR systems, including Payroll and Benefits Administration, do not currently have this capability; reports and forms need to be created, tested, and managed throughout the year to ensure proper compliance reporting on an annual basis.

Start Planning Now

Employers should not be complacent regarding this reporting requirement. While reports are not due until February/March 2016, employers MUST begin to start planning their reporting process now. Collection, maintenance, and audit will require careful cross-functional assistance in all departments – HR, Payroll, Benefits, and IT must be in lock step and ensure all the necessary data are captured and systems are capable of aggregating all the necessary data for annual reporting.

It is imperative that employers not assume current vendors and internal ERP or HR systems will be capable of reporting without significant process changes and updates as well as possible upgrades and likely additional costs.

Employers have been surprised and thankful for frequent delays and changes to the law. However, the complexities surrounding eligibility, communication, and reporting should not be taken lightly; early preparation and adoption should be top of the task list for Q3 and Q4 of 2014.

It is important to remember that the reporting requirement is for both the IRS and employees. A process for data collection, segregation, and aggregation of data will be needed, along with a full compliance process to ensure employers are reporting as required based on a number of factors.

Incorrect, improper, and delinquent reporting will not be taken lightly: under the regulations there is a cost associated with improper penalties. The penalty may be $30 to $100 per incorrect return capped at $1.5M per year. An additional penalty may be applied for each failure to file a correct employee statement in the same amount ($30 to $100) and applied in the same manner as the penalty for failure to timely file the IRS returns. Exceptions may apply (de minimis failures), but absolute disregard of the rules may cause much steeper penalties to be imposed.

Being confident in a process and system that ensures the required information is collected and managed for timely and correct reporting to the IRS and all employees is critical for an employer to remain compliant without additional labor costs, capital expenditures, and reliance on current vendors.