By Think HR and WAKEUP CALL
It was a busy week for news regarding the Affordable Care Act (ACA). Courts issued conflicting rulings on ACA subsidies, the IRS raised the threshold for “affordable coverage” under the employer mandate, and the IRS released drafts of forms related to the new employer reporting requirements for 2015.
Conflicting Court Rulings on ACA Subsidies
On July 22, two different federal appeals courts ruled on whether subsidies are available through all ACA insurance exchanges or only through state-run exchanges. The two rulings are mirror opposites so further appeals are expected. In the meantime, subsidies continue to be available in all states.
Exchange subsidies are an important issue for large employers due to the ACA’s “play or pay” provision (employer mandate). Starting in 2015, large employers may be assessed penalties for failure to offer health coverage to their full-time employees. The penalty mechanism is not triggered, however, unless at least one full-time employee receives an exchange subsidy for an individual insurance policy. For this reason, the availability of subsidies can have significant impact on employers.
By way of background, the ACA provides for establishing health insurance exchanges (or marketplaces) in each state. States have the option of establishing and running the exchanges. For any state that is unable or unwilling to establish a state-run exchange, the ACA provides for Health and Human Services to operate a federally-facilitated exchange (FFE) for the state in compliance with its state insurance laws.
The ACA also provides for subsidies in the form of premium tax credits, based on household income, to help individuals and families purchase insurance through an exchange. The plain text of the ACA refers to subsidies in connection with an exchange “established by the State.” The two appeals courts separately considered whether the current practice of extending subsidies to all states is consistent with the law:
- D.C. Circuit Court: A three-judge panel, in a split 2-1 decision, held that the ACA restricts subsidies to insurance purchased on state-run exchange established by the state and prohibits subsidies through FFEs. The ruling is available at Halbig v Burwell.
- 4th Circuit Court: The court unanimously held that ACA subsidies are available both in states with state-run exchanges and in states with FFEs. The ruling is available at King v Burwell.
At this time, the rulings have no immediate impact. Subsidies remain available in all states.
IRS Increases “Affordable Coverage” Threshold for 2015
On July 24, the IRS released Rev. Proc. 2014-37 providing indexing adjustments for several dollar amounts and percentages under the ACA. Large employers becoming subject to the ACA’s “play or pay” provision (employer mandate) in 2015 will welcome the news that the affordable coverage threshold is increasing slightly from 9.5 percent to 9.56 percent.
Under the play or pay rules, large employers may be assessed penalties for failure to offer full-time employees minimum value coverage that is affordable. “Affordable” generally means the employee’s contribution for self-only coverage (if elected) does not exceed 9.5 percent of the employee’s income from that employer. Although 9.5 percent was the 2014 amount written into the original law, it is subject to change each year for inflation. For 2015, the affordability limit will be 9.56 percent.
IRS Releases Draft Forms for ACA Reporting
The ACA added two health coverage reporting requirements to the Internal Revenue Code. Both take effect for 2015, with the first reports due in early 2016:
- IRC § 6056 requires large employers (50 or more full-time employees including full-time equivalents) to file annual reports detailing the health coverage they offer to full-time employees. Information will include employee names and SSNs, along with indicators (codes) about the type of health coverage offered. Large employers will give a Form 1095-C to each employee, and also file these forms with the IRS using transmittal Form 1094-C.
Caution: Large employers are those with 50 or more full-time employees (including full-time-equivalents). Although some mid-size (50-99) employers and/or some employers with non-calendar year plans may qualify for short-term transition relief under the ACA’s “play or pay” rules, the ACA’s reporting requirements still apply for 2015.
- IRC § 6055 requires insurers and self-funded plan sponsors to file annual reports detailing the health coverage provided to each individual. This includes any employer, large or small, that sponsors a self-funded health plan. For this purpose, employers will provide Form 1095-B to plan enrollees and members, and also file these forms with the IRS using transmittal Form 1094-B.
Large employers that also sponsor a self-funded health plan can use Form 1095-C to satisfy both the § 6056 and 6055 reporting requirements.
On July 24, the IRS posted preliminary drafts of Forms 1094-B, 1094-C, 1095-B, and 1095-C. Draft instructions will not be posted until next month, but the forms (with indicator codes) seem self-explanatory. The IRS expects to finalize the forms and instructions later this year.