Question: How is ACA reporting different for employers that sponsor a self-insured medical plan?
Short Answer: ALEs with a self-insured medical plan (including a “level funded” plan) must complete Part III of the Form 1095-C to report the months of coverage for the employee and any covered dependents. Non-ALEs with a self-insured medical plan must provide employees with the Form 1095-B to report coverage.
ALE Status: Employers Subject to the ACA Employer Mandate
The ACA employer mandate pay or play rules apply to employers that are “Applicable Large Employers,” or “ALEs.” In general, an employer is an ALE if it (along with all members in its controlled group) employed an average of at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year.
ALEs are subject to both the ACA employer mandate under §4980H as well as the ACA reporting requirements under §6056 via Forms 1094-C and 1095-C.
Important Note: The IRS recently proposed new ACA reporting regulations that make permanent the 30-day automatic extension from prior years for employers to furnish the Form 1095-C to individuals. The rules apply to the current season of ACA reporting, thereby extending the deadline to provide the 2021 Forms 1095-C to March 2, 2022. The proposed regulations also confirm the end of the IRS good faith enforcement safe harbor, which was previously available as transitional relief to avoid penalties for incorrect or incomplete information on the ACA reporting forms.
For more details, see:
- Newfront Office Hours Webinar: The ACA Employer Mandate & ACA Reporting
- Becoming an ALE Subject to the ACA Employer Mandate
ACA Reporting Requirements: ALE Status and Fully Insured vs. Self-Insured
The specific ACA reporting requirements vary depending on whether the employer is an ALE and whether the medical plan it sponsors is fully insured or self-insured. Note that so-called “level funded” plans are treated as self-insured for these purposes because they are not fully insured.
ALE Sponsoring a Self-Insured Medical Plan
- IRC §6055 and §6056 Reporting
- Completed via Forms 1094-C and 1095-C.
- Employer must complete Part III of the Form 1095-C (“Covered Individuals”) for enrolled individuals.
- If the employer sponsors both self-insured and fully insured medical plan options, the employer completes Part III only for individuals enrolled in the self-insured medical plan.
- Important Note: “Level funded” plans are considered self-insured for these purposes.
ALE Sponsoring a Fully Inured Medical Plan
- IRC §6056 Reporting Only
- Completed via Forms 1094-C and 1095-C.
- Employer does not complete Part III of the Form 1095-C (“Covered Individuals”).
- Insurance carrier completes coverage information on separate Form 1095-B.
Non-ALE Sponsoring a Self-Insured Medical Plan
- IRC §6055 Reporting Only
- Completed via Forms 1094-B and 1095-B.
- Employer does not complete Forms 1094-C and 1095-C (because not subject to the employer mandate).
- Employer information listed in Part III (“Issuer or Other Coverage Provider”) of the 1095-B.
- Employer does not complete Part II (“Information About Certain Employer-Sponsored Coverage”) of the Form 1095-B.
- Important Note: “Level funded” plans are considered self-insured for these purposes.
Non-ALE Sponsoring a Fully Insured Medical Plan
- No ACA Reporting!
Additional ACA Reporting Requirements for Self-Insured Plans: §6055 Coverage Reporting
ALEs with a self-insured medical plan are subject to §6055 and §6056 reporting. This means that, in addition to Parts I and II, they must also complete Part III of the Form 1095-C for all covered employees and dependents.
Only employers with self-insured medical plans complete Part III. Employers sponsoring both self-insured and fully insured medical plan options will complete Part III only for individuals enrolled in the self-insured plan option(s).
Part III Overview
The top of Part III states: “If Employer provided self-insured coverage, check the box and enter the information for each individual enrolled in coverage, including the employee.” (emphasis added)
Employers check this box at the top of Part III of the Form 1095-C for any individual enrolled in the self-insured medical plan option during the reporting year. The remainder of Part III (Lines 18 – 30) lists the months of coverage under the self-insured medical plan option for the employee and any covered dependents.
Note that Part III of the Form 1095-C initially was on the bottom half of page 1. Recent updates to the Form 1095-C moved Part III to its own page 3 to provide sufficient space to report all covered dependents for employees with large families.
Dependent SSN Solicitation Process
Part III includes an SSN entry field for the employee and each covered dependent. However, there is no requirement that the employee provide each covered dependents’ SSN, nor is there any requirement that the employer obtain each covered dependents’ SSN from the employee. What is required is that the employer act in a “responsible manner” to obtain each covered dependents’ SSN.
To act in a “responsible manner,” the employer must make three attempts to solicit each covered dependents’ SSN from the employee:
- First Solicitation: Employer requests the SSN upon the employee’s election to enroll the dependent. This is referred to as the “account opened” solicitation.
- Second Solicitation: Employer requests the SSN again within 75 days of the employee’s election to enroll the dependent. This is referred to as the “first annual solicitation”.
- Third Solicitation: Employer requests the SSN a third time by December 31 of the year following the year the employee elected to enroll the dependent. This is referred to as the “second annual solicitation”.
Use DOB Where Employee Fails to Provide Dependent SSN
If the employee fails to provide the dependent’s SSN after all three attempts, there is no requirement to continue to solicit the SSN. At this point (as well as during the solicitation process) the employer will enter the dependent’s date of birth in Part III, column (c) of the Form 1095-C (instead of the SSN in column (b)).
What About Fully Insured Medical Plans?
ALEs sponsoring fully insured medical plans are not subject to the §6055 reporting in Part III of the Form 1095-C. Their only reporting responsibility is under §6056, which is limited to Parts I and II of the Form 1095-C (as well as the full Form 1094-C).
Enrolled employees and their dependents’ coverage information for a fully insured plan are instead reported by the insurance carrier on the Form 1095-B. The insurance carrier is solely responsible for furnishing and filing the Form 1095-B coverage information reporting for a fully insured plan, as well as soliciting any missing dependent SSNs.
In light of the TCJA effective repeal of the ACA individual mandate by reducing the penalties to zero as of 2019, the IRS has provided relief to insurance carriers in recent reporting years (referred to as §6055 furnishing relief”) that does not require them to furnish the Form 1095-B to covered individuals.
The relief provides that the IRS will not assess penalties for an insurance carrier’s failure to furnish Forms 1095-B to individuals under two conditions:
- The insurance carrier posts a notice prominently on its website stating that individuals may receive a copy of their Form 1095-B upon request (with relevant contact information); and
- The insurance carrier must furnish the Form 1095-B to any individual upon request within 30 days of the date it receives the request.
Important Note: This relief with respect to insurance carriers furnishing coverage information to individuals on the Form 1095-B does not apply to ALEs reporting on the Form 1095-C. The ACA employer mandate remains fully in effect, and therefore so do the employer ACA reporting requirements via Form 1095-C. Employers sponsoring a self-insured medical plan are still required to complete Part III of the Forms 1095-C for individuals enrolled in that plan (even though that information is related to the same §6055 reporting requirements) and furnish the Forms 1095-C automatically to those individuals.
Self-insured health plans have additional reporting requirements under §6055 that require ALEs to complete the employee and dependent coverage information in Part III of the Form 1095-C. Employers leave this Part III section blank for employees enrolled in a fully insured plan—that coverage information is instead reported by the carrier on a separate Form 1095-B.
Keep in mind that so-called “level funded” plans or any similar arrangement that operates like a hybrid approach are considered self-insured for these purposes because they are not fully insured.
Additional ACA Reporting Requirements for Self-Insured Plans: Why Does §6055 Reporting Still Exist?
The TCJA effectively repealed the ACA individual mandate by reducing the penalties to zero as of 2019. As a result, the §6055 coverage information gathered in Part III of the Form 1095-C for a self-insured plan no longer has a clear federal reporting purpose.
Nonetheless, several states have recently added their own state-based individual mandates in response to the effective repeal of the ACA federal individual mandate. Such states include California, Massachusetts, New Jersey, Rhode Island, Vermont, and Washington D.C. These states typically rely on the §6055 reporting information by piggybacking off Part III of the Form 1095-C (provided to the state by the employer for self-insured plans) or Form 1095-B (provided to the state by the carrier for fully insured plans) to gather coverage information for residents.
If the §6055 reporting requirements were eliminated in response to the now defunct ACA individual mandate, such states would have to devise their own state-based individual mandate reporting forms. Those could be modelled after the Massachusetts Form 1099-HC that has been used since the state first imposed its individual mandate well in advance of the ACA.
Additional ACA Reporting Requirements for Self-Insured Plans: COBRA Coverage Reporting
All ALEs must address ACA §6056 offer of coverage reporting in Part II of the Form 1095-C for COBRA situations where the qualifying event is the loss of coverage caused by a reduction in hours. However, additional COBRA ACA coverage reporting in Part III of the Form 1095-C applies where the individuals are enrolled in a self-insured plan.
In addition to the ACA reporting related to COBRA that fully insured plans must address with reduction-in-hours qualifying events, self-insured plans (including level funded plans) must also report on all COBRA enrollments to satisfy their §6055 coverage reporting requirements.
Part II of the Form 1095-C for individuals who were a full-time employee for at least one month in the year will be completed the same for both a self-insured and fully insured plan. The difference for self-insured plans is the addition of the coverage information completed in Part III for all months of active or COBRA coverage.
For individuals whose active coverage terminated in a prior year but were enrolled in COBRA under a self-insured plan for at least one month in the reporting year, the Part II coding will reflect that the individual was not an employee for any month of the year:
Active Coverage Ended Pervious Year—COBRA Enrollee in Self-Insured Plan
- Line 14: 1G (not an employee for all 12 months)
- Line 15: Blank (per instructions when using 1G in Line 14)
- Line 16: Blank (per instructions when using 1G in Line 14)
- Part III: Coverage information completed for months of COBRA coverage
- Note: The employer may choose to report for the former employee on a separate Form 1095-B instead.
Additional special coverage reporting rules apply where the spouse or dependent elect COBRA separately from the employee.
- For more details, see: ACA Reporting and COBRA.
ACA Reporting: Failure to Comply
The general potential late/incorrect ACA reporting penalties are $280 for the late/incorrect Forms 1095-C furnished to employees, and $280 for the late/incorrect Forms 1094-C and copies of the Forms 1095-C filed with the IRS.
That comes to a total potential general ACA reporting penalty of $560 per employee when factoring in both the late/incorrect Form 1095-C furnished to the employee and the late/incorrect copy of that Form 1095-C filed with the IRS.
The maximum penalty for a calendar year will not exceed $3,426,000 for late/incorrect furnishing or filing. (Note that the employer is subject to a penalty of at least $560 per form—with no maximum penalty—if the IRS finds that it intentionally disregarded the filing or furnishing of the correct Forms 1094-C and 1095-C.)
The IRS reduces that general penalty if the late/corrected forms are furnished/filed in certain time periods:
- 30-Day Correction: If corrected within 30 days of the due date, the per-return penalty is $50 (capped at $571,000).
- August 1 Correction: If corrected by August 1, the per-return penalty is $110 (capped at $1,713,000).
There is also “reasonable cause” relief available that could potentially reduce or eliminate these ACA reporting penalties if the employer can show no willful neglect, that it acted in a responsible manner both before and after the failure occurred, and there were significant mitigating factors or events beyond its control. Those requirements are set forth in Treas. Reg. §301.6724-1. IRS Publication 1586 includes a useful summary of the conditions to qualify for reasonable cause relief.
- For more details, see: ACA Reporting Penalties.
ACA Reporting: Employee Communication Materials
The following communication materials address this complex reporting arrangement for employees in a short and straightforward manner:
- Newfront ACA Reporting Infographic for Employees: Self-Insured
- Newfront ACA Reporting Infographic for Employees: Fully Insured
- Newfront ACA Reporting Infographic for Employees: Fully Insured and Self-Insured
- Newfront ACA Reporting Educational Video
Additional IRS Resources
- IRS Forms 1094-C and 1095-C Instructions: https://www.irs.gov/instructions/i109495c
- IRS Form 1094-C: https://www.irs.gov/pub/irs-pdf/f1094c.pdf
- IRS Form 1095-C: https://www.irs.gov/pub/irs-pdf/f1095c.pdf
- IRS ACA Reporting FAQ: https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-reporting-of-offers-of-health-insurance-coverage-by-employers-section-6056
Disclaimer: The intent of this analysis is to provide the recipient with general information regarding the status of, and/or potential concerns related to, the recipient’s current employee benefits issues. This analysis does not necessarily fully address the recipient’s specific issue, and it should not be construed as, nor is it intended to provide, legal advice. Furthermore, this message does not establish an attorney-client relationship. Questions regarding specific issues should be addressed to the person(s) who provide legal advice to the recipient regarding employee benefits issues (e.g., the recipient’s general counsel or an attorney hired by the recipient who specializes in employee benefits law).