Reform Q&A

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Yes, this affects the minimum value of the plan.  Since we cannot see what this plan covers, we can only assume the carrier’s requirement for the employer contribution of $500 is what qualifies this plan for the silver.  The employer should choose a plan that does not require a mandatory HSA contribution or they may be subject to the penalty if they do not contribute.  The actuarial value takes the annual employer contribution amount into account when determining the actuarial value.  

  1. 2015
  2. 2015
  3. They should be reviewing the data each month.
  4. There is no transitional relief.

For purposes of determining if the group is a large employer, the formula requires the following steps:

  1. Determine the total number of full-time employees working at least 120 hours per month (including any full-time seasonal workers) for each calendar month in the preceding calendar year;
  1. Determine the total number of full-time equivalents (including non-full-time seasonal employees) for each calendar month in the preceding calendar year;
  1. Add the number of full-time employees and full-time equivalents described in Steps 1 and 2 above for each month of the calendar year;
  1. Add up the 12 monthly numbers;
  1. Divide by 12.

If the average per month is 50 or more, you are a large employer. 

Size does not matter.  Controlled groups and affiliated services groups do not need to apply any entity aggregation rules for related employers.  Until further guidance from the IRS, two companies under common control would not be subject to this reporting requirement if each filed fewer than 250 Forms W-2 for the preceding calendar year, even if the combined total was more than 250.

Union employees in a multi-employer union plan count in determining if an employer issued at least 250 W-2s in the prior calendar year, BUT the employer is not required to report the cost of health care that was provided through the multi-employer union plan.

An employer is also not required to issue a Form W-2 solely to report the value of the health care coverage for retirees or other employees or former employees to whom the employer would not otherwise provide a Form W-2.

Question: ”I would like to ask you with regards to health insurance for employees.  So, our company has been giving insurance allowance to the employees due to the very small number of employees at the company.  And, recently we heard from IRS this statement below.

“As of January 1, 2014, the IRS and the U.S. Department of Labor prohibited reimbursements by employers to employees for their individual health insurance policies because of the Affordable Care Act.  Their reasoning is that employers who make such payments to employees are putting themselves in the position of acting as insurance companies, which have strict new rules about coverage and benefits.  The penalty for making these reimbursements is $100 per day per employee.  This created so many problems for employers that the IRS has postponed enforcement until July 1, 2015.”

So, now we would like to know if this applicable to companies with employees less than 25/50 or how does this work? ” is provided below:

Any small employer, defined generally as an employer with less than 50 full-time employees, will not be subject to the penalty for conducting an employee reimbursement plan either for 2014 or for the period January 1 through June 30th, 2015. However, the employer will become subject to the penalty beginning July 1, 2015.

Also in the Notice, the IRS explains that an employer covered by this exemption is not required to file Form 8928, regarding failures to satisfy requirements for group health plans, including market reforms, with their 2014 tax return.

According to the IRS

Question 1 (Transition Relief for Small Employers from the Code § 4980D Excise Tax ): Small employers have in the past often offered their employees’ health coverage through arrangements that would constitute an employer payment plan as described in Notice 2013-54. If an employer offered coverage through such an arrangement, will the employer owe an excise tax under Code § 4980D?

Answer 1: In general, yes; however, this notice provides limited transition relief for coverage sponsored by an employer that is not an ALE under §§54.4980H-1(a)(4) and -2.

Notice 2013-54 concludes that the arrangements constituting employer payment plans as described in that notice fail to comply with the market reforms and may subject employers to the excise tax under Code § 4980D. At the same time, the Departments understand that some employers that had been offering health coverage through an employer payment plan may need additional time to obtain group health coverage or adopt a suitable alternative.

The SHOP Marketplace addresses many of the concerns of small employers. However, because the market is still transitioning and the transition by eligible employers to SHOP Marketplace coverage or other alternatives will take time to implement, this guidance provides that the excise tax under Code § 4980D will not be asserted for any failure to satisfy the market reforms by employer payment plans that pay, or reimburse employees for individual health policy premiums or Medicare part B or Part D premiums (1) for 2014 for employers that are not ALEs for 2014, and (2) for January 1 through June 30, 2015 for employers that are not ALEs for 2015.  After June 30, 2015, such employers may be liable for the Code § 4980D excise tax.

For purposes of this Q&A-1, an ALE generally is, with respect to a calendar year, an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year. See 3

Code § 4980H(c)(2) and §§ 54.4980H-1(a)(4) and -2. For determining whether an entity was an ALE for 2014 and for 2015, an employer may determine its status as an applicable large employer by reference to a period of at least six consecutive calendar months, as chosen by the employer, during the 2013 calendar year for determining ALE status for 2014 and during the 2014 calendar year for determining ALE status for 2015, as applicable (rather than by reference to the entire 2013 calendar year and the entire 2014 calendar year, as applicable). See section IX.E of the preamble to the proposed regulations under § 4980H (78 FR 218, 238) (Jan. 2, 2013) and section XV.D.3 of the preamble to the final regulations under § 4980H (79 FR 8544, 8573) (Feb. 12, 2014).

Employers eligible for the relief described in this Q&A-1 that have employer payment plans are not required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans under chapter 100 of the Code, including the market reforms) solely as a result of having such arrangements for the period for which the employer is eligible for the relief. This relief does not extend to stand-alone HRAs or other arrangements to reimburse employees for medical expenses other than insurance premiums. 

To the best of our knowledge, below are the current potential penalties to consider.

  1. The ACA requires applicable large employers (ALEs) to either provide affordable, minimum value health coverage to full-time employees or face penalties.  Employers and plan sponsors must also comply with new reporting and disclosure requirements, such as the health coverage reporting requirements under Internal Revenue Code Sections 6055 and 6056.  In addition, the ACA imposes several taxes and fees on health plan sponsors, such as the transitional reinsurance fee and the tax on high-cost employer plans.

Failing to comply with the ACA’s requirements can cause severe consequences for an employer.  The potential consequences vary depending on the ACA requirement that is involved and the nature and extent of the violation.

Group Health Plan Reforms

Code Section 4980D imposes an excise tax for a group health plan’s failure to comply with certain requirements, including the ACA’s reforms for group health plans.  Failing to comply with a group health plan requirement may trigger an excise tax of $100 per day with respect to each individual to whom the failure relates.

ACA Requirements

The violation may be triggered by any of the following ACA requirements for group health plans:




Coverage for adult children up to age 26

Plan years beginning on or after

Sept. 23, 2010 (limited exemption

for grandfathered plans for plan

years prior to Jan. 1, 2014)

Health plans offering dependent


No lifetime or annual limits on the dollar value of essential health benefits

For lifetime limits, plan years beginning on or after Sept. 23, 2010 For annual limits, plan years beginning on or after Jan. 1, 2014 (restricted annual limits phased in for 2010 to 2013)

All health plans Exceptions apply for integrated HRAs and FSAs offered under a cafeteria plan. These plans are not subject to the prohibition on annual limits.

No coverage rescissions, except in cases of fraud or intentional material misrepresentation

Plan years beginning on or after

Sept. 23, 2010

All health plans

No pre-existing condition exclusions

Plan years beginning on or after Sept. 23, 2010, for enrollees under age 19 Plan years beginning on or after Jan. 1, 2014, for all other enrollees

All health plans

Coverage of preventive health services without cost-sharing

Plan years beginning on or after Sept. 23, 2010

All non-grandfathered health plans (certain exceptions apply to the contraceptive coverage mandate)

Patient protections (designation of primary care provider, designation of pediatrician as primary care provider, patient access to obstetrical and gynecological care and improved access to emergency services)

Plan years beginning on or after Sept. 23, 2010

All non-grandfathered health plans

Improved internal claims and appeals process, including external review requirements

Plan years beginning on or after Sept. 23, 2010

All non-grandfathered health plans

Uniform summary of benefits and coverage (SBC) requirement

First open enrollment period beginning on or after Sept. 23, 2012, for participants enrolling during open enrollment For other participants, first plan year beginning on or after

Sept. 23, 2012

All health plans

No waiting periods in excess of 90 days

Plan years beginning on or after Jan. 1, 2014

All health plans

Nondiscrimination rules for fully insured health plans

Effective date is delayed until guidance is released

Non-grandfathered, fully insured health plans

Limits on cost-sharing (out-of-pocket maximum for essential health benefits)

Plan years beginning on or after Jan. 1, 2014

Non-grandfathered health plans

Coverage for approved clinical trials

Plan years beginning on or after Jan. 1, 2014

Non-grandfathered health plans

No discrimination based on health status (including rules for wellness programs)

Plan years beginning on or after Jan. 1, 2014

Non-grandfathered health plans (final regulations on wellness plans apply to both non-grandfathered and grandfathered health plans)

Comprehensive health insurance coverage (essential health benefits requirement)

Plan years beginning on or after Jan. 1, 2014

Non-grandfathered insured health plans in the small group market

No discrimination against health care providers acting within the scope of license

Plan years beginning on or after Jan. 1, 2014

Non-grandfathered health plans

Summary of Benefits and Coverage

The ACA establishes a penalty of up to $1,000 for each willful failure to provide the SBC.  Failing to provide the SBC may also trigger an excise tax of $100 per day, per individual, as discussed above.

However, the Departments of Labor, Health and Human Services (HHS) and the Treasury (Departments) have stated that their approach to implementation emphasizes assisting (rather than imposing penalties on) plans, issuers and others that are working diligently and in good faith to understand and come into compliance with the SBC requirement.  According to FAQs issued by the Departments in May 2014, this enforcement relief will continue to apply until further guidance is issued.

The ACA also requires health plans and issuers to provide at least 60 days’ advance notice of any material modifications to plan terms that take effect during a plan year and are not reflected in the most recently provided SBC.  A willful failure to provide this 60-day advance notice may trigger a $1,000 penalty and an excise tax of $100 per day, per individual.

Employer Coverage Mandate

Beginning in 2015, applicable large employers (ALEs) may face penalties if one or more of their full-time employees obtain a premium tax credit or cost-sharing reduction through an Exchange.  The ACA’s employer penalty rules often referred to as the “pay or play” rules or the employer shared responsibility rules.

An ALE is an employer with, on average, at least 50 full-time employees, including full-time equivalents (FTEs), during the preceding calendar year.  An individual may be eligible for a premium tax credit or cost-sharing reduction either because the ALE does not offer health plan coverage or the employer offers coverage that is either not “affordable” or does not provide “minimum value.”

The amount of the pay or play penalty generally depends on whether an employer offers coverage to substantially all full-time employees and their dependents.  In general, “substantially all” means 95 percent of an employer’s fulltime employees and dependents.  However, under a special transition provision for 2015 (and any calendar months during the 2015 plan year that fall in 2016), “substantially all” means 70 percent of an employer’s full-time and employees and dependents.

Effective Date

ALEs with 100 or more full-time employees must comply with the pay or play rules starting in 2015.  ALEs that have fewer than 100 full-time employees will generally have an additional year, until 2016, to comply with the pay or play rules.

Penalty for Not Offering Coverage to Substantially All Full-time Employees

Once the pay or play rules take effect, an ALE will be subject to a penalty if any of its full-time employees receives a premium tax credit or cost-sharing reduction toward an Marketplace/Exchange plan.

The monthly penalty assessed on ALEs that do not offer coverage to substantially all fulltime employees and their dependents will be equal to the number of full-time employees (minus 30) multiplied by 1/12 of $2,000 for any applicable month.

Transition relief for 2015 allows employers with 100 or more full-time employees (including FTEs) to reduce their fulltime employee count by 80 when calculating the penalty.  This relief applies for 2015 and any calendar months of 2016 that fall within the employer’s 2015-plan year.

Penalty for Offering Coverage

Employers who do offer coverage to substantially all full-time employees and dependents may still be subject to penalties if at least one full-time employee obtains a premium tax credit or cost-sharing reduction in an Exchange plan because the employer did not offer coverage to all full-time employees, or the employer’s coverage is unaffordable or does not provide minimum value.

Form W-2 Reporting – Aggregate Cost of Health Care

The ACA requires employers to report the aggregate cost of employer-sponsored group health plan coverage on their employees’ Forms W-2.  Until the IRS issues further guidance, this reporting requirement is optional for small employers (those that file fewer than 250 Forms W-2).  Beginning in 2012, the IRS made the reporting requirement mandatory for large employersThus, the W-2 reporting requirement is currently mandatory for large employers, but optional for small employers.

Violations of the ACA’s W-2 reporting requirement are subject to existing rules on filing Forms W-2.  For employers who fail to comply with the W-2 reporting requirement, penalties start at $30 per Form W-2 up to a maximum of $1.5 million per calendar year, depending on the number of failures and when they are corrected.  The penalty is:

 $30 per Form W-2 if the employer correctly files within 30 days (by March 30 if the due date is Feb. 28), up to a maximum of $250,000 per year;

 $60 per Form W-2 if the employer correctly files more than 30 days after the due date but by Aug. 1, up to a maximum of $500,000 per year; or

 $100 per Form W-2 if the employer files after Aug. 1, does not file required Forms W-2 or does not file corrections and does not meet any exceptions to the penalty, up to a maximum of $1.5 million per year.

If any violation is due to intentional disregard of the filing or correct information requirements, the penalty is at least $250 per Form W-2 with no maximum penalty.

There are some exceptions to the Form W-2 reporting penalties.  For example, a penalty will not apply if the employer can show that the failure was due to reasonable cause and not to willful neglect.  In general, the employer must be able to show that:

 The failure was due to an event beyond the employer’s control or due to significant mitigating factors; and

 The employer acted in a responsible manner and took steps to avoid the failure.

Employer Reporting – Code Sections 6055 and 6056

The ACA created new reporting requirements under Code Sections 6055 and 6056.  Under these new reporting rules, certain employers will be required to provide information to the IRS about the health plan coverage they offer (or do not offer) to their employees.  Related statements must also be provided to employees.

These new reporting requirements apply to:

Employers with self-insured health plans (Code § 6055)—Every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs and any other entity that provides minimum essential coverage must file an annual return with the IRS, reporting information for each individual who is provided with this coverage.  Related statements must also be provided to individuals.

ALEs with at least 50 full-time employees, including FTEs (Code § 6056)—ALEs subject to the ACA’s shared responsibility provisions must file a return with the IRS that reports the terms and conditions of the health care coverage provided to the employer’s full-time employees for the calendar year.  Related statements must also be provided to employees.

A reporting entity that fails to comply with the Section 6055 or Section 6056 reporting requirements may be subject to the general reporting penalties for failure to file correct information returns and failure to furnish correct payee tatements under Code Sections 6721 and 6722.  In general, these penalties are $100 for each return or statement with respect to which there is a failure, up to a maximum of $1.5 million in a calendar year.  Some relief applies if the failure is due to reasonable cause and not to willful neglect.

For returns and statements filed and furnished in 2016 to report offers of coverage in 2015, the IRS will not impose penalties on reporting entities that can show they made good faith efforts to comply with the information reporting requirements.  This relief is provided only for incorrect or incomplete information reported on the return or statement, including Social Security numbers, TINs or dates of birth.  No relief is provided for reporting entities that do not make a good faith effort to comply with these reporting requirements or that fail to timely file an information return or statement.


Health insurance issuers and self-funded group health plans must pay fees to finance comparative effectiveness research.  These research fees are called Patient-centered Outcomes Research Institute fees (PCORI fees).  The fees apply for plan years ending on or after Oct. 1, 2012.  The PCORI fees do not apply for plan years ending on or after Oct. 1, 2019.  For calendar year plans, the research fees are effective for the 2012 through 2018 plan years.

The PCORI fees are due by July 31 of the calendar year following the plan year to which the fee applies.

For plan years ending before Oct. 1, 2013 (that is, 2012 for calendar year plans), the research fee was $1 multiplied by the average number of lives covered under the plan.  For plan years ending on or after Oct. 1, 2013, and before Oct. 1, 2014, the fee is $2 multiplied by the average number of lives covered under the plan.  For plan years ending on or after Oct. 1, 2014, and before Oct. 1, 2015, the fee amount was adjusted to $2.08 under IRS Notice 2014-56.  For plan years ending on or after Oct. 1, 2015, the PCORI fee amount will grow based on increases in the projected per capita amount of National Health Expenditures.

Since the PCORI fee is considered a tax that is reportable on IRS Form 720, any related penalty for failure to file a return or pay a tax likely applies.  Under Code Section 6651, the penalty for failing to file a return or pay a tax is the full amount of the tax, plus possible excise taxes ranging from .5 percent to 25 percent of the original tax.  However, there are exceptions to the excise taxes for failures that are due to reasonable cause and not due to willful neglect.

Reinsurance Fees

Health insurance issuers and self-funded group health plans must pay fees to a transitional reinsurance program for the first three years of health insurance Exchange operation (2014 to 2016).  The fees will be used to help stabilize premiums for coverage in the individual market.  Fully insured plan sponsors do not have to pay the fee directly.

Certain types of coverage are excluded from the reinsurance fees, including HRAs that are integrated with major medical coverage, HSAs, health FSAs and coverage that consists solely of excepted benefits under HIPAA (such as stand-alone vision and dental coverage).  Also, self-insured group health plans that do not use a third-party administrator for their core administrative functions are exempt from the requirement to make reinsurance contributions for the 2015 and 2016 benefit years.

The reinsurance program’s fees are based on a national contribution rate, which HHS announces annually.  For 2015, the national contribution rate is $44 per enrollee per year.

According to HHS, any reinsurance contribution payment that is not made on time will be subject to the federal debt collection rules.  Additionally, reinsurance contributions are considered federal funds that would be subject to the False Claims Act.

Cadillac Tax

The Cadillac Tax begins in the taxable year of 2018.

  1. The monthly penalty a large employer is obligated to pay for not offering any coverage is equal to:

the number of full-time employees employed during the applicable month minus the first 30 full-time employees In 2015 it is the first 80 full time employees in businesses with 100 or more employees.

(100 Full-Time Employees) – 30 (or -80) x ($2,000/12) or, substitute $3,000 instead of $2,000, if the employer fails to meet affordability or the actuarial threshold.

Only full-time employees (not full-time equivalents) are counted for the purposes of determining the penalty

Question: I’m reaching out to you in hopes that you can answer a question for us as it relates to ACA compliance.  If an employee typically works less than 30 hours a week but does a 3 month period in which he works more than 30 hours a week, how does this affect our 6055 filing for 2016.  Does the look-back period in 2015 average hours over a year, over a quarter, by pay period?  Also, I believe I read that there is a ‘de minimus’ threshold for compliance which indicates that if less than 5 employees or 5% of workforce is not in compliance with the obligation to offer benefits for workers exceeding 30 hours in a work week, the penalty for non-compliance would not be imposed on these individuals.


If your plan is fully insured, the 6055 is filed by the insurer.  If your plan is self-insured, the plan sponsor that establishes and maintains the plan must file the §6055 report.  So if minimum essential coverage is provided under your self-funded plan, you must file a §6055 annual return with the IRS for every primary insured employee covered under the plan.

It depends on the stability/measurement period you are using.   For purposes of the employer mandate penalties, the guidance permits you to use two methods to determine if an employee is a full time employee.  The first is a “look-back measurement period/stability period” method where you may use a standard measurement/stability period for ongoing variable hour employees, while using a different initial measurement/stability period for new variable hour and seasonal employees.  The second method is the “monthly” method where full-time employee status is determined on a month-to-month basis.

The group may not be penalized but every individual must have health insurance or will be penalized.

Question: While meeting with a large group client this morning,  I brought up the importance of the new ACA rehire rules.  They asked me something that I could not answer and I'm hoping you know or you can direct me.   

They are a home healthcare business.  They have nurses that have worked full time and have been covered by their health plan and then their hours reduce and go down to a part time status.  They are then offered COBRA if covered on benefits,  due to a reduction in hours.  The question is if they begin working full time again (demand gets high and they need them to work more hours) and it's been less than 13 weeks since they went part time, do they immediately become eligible as of the first of the month following a week of full time duty?  Or is there a time frame measurement for them to be back full time i.e. 1 week, 1 month? 


It will depend on the length of the non-employment period.  If the period of non-employment is at least 13 weeks, you may treat the rehired employee as a new employee. 

You can also use the “rule of parity” that says an employee may be treated as a new employee if the period of non-employment of less than 13 weeks is at least four weeks long and is longer than the employee’s period of employment immediately preceding the period of non-employment.  For example, if an employee works six weeks, terminates employment, and is rehired ten weeks later, that rehired employee is treated as a new employee because the ten-week period of non-employment is longer than the immediately preceding six-week period of employment. 

For employees that are treated as continuing employees (as opposed to an employee who is treated as terminated and rehired), the measurement and stability period that would have applied to the employee had the employee not experienced the period of non-employment would continue to apply upon the employee’s resumption of service. For example, if the continuing employee returns during a stability period in which the employee is treated as a full-time employee, the employee is treated as a full-time employee upon return and through the end of that stability period and must be offered coverage again as of the first day that employee is credited with an hour of service, or, if later, as soon as administratively practicable (i.e., March 1 hired F/T 90 day WP, April1 P/T, May 1 F/T, June 1 Benefits) and (i.e., March 1 hired F/T 90 day WP, April1 P/T, June 1 F/T, September 1 Benefits).  For this purpose, offering coverage by no later than the first day of the calendar month following resumption of services is deemed to be as soon as administratively practicable.

Form 1095-C is filed and furnished to any employee of an ALE member who is a full-time employee for one or more months of the calendar. ALE Members must report that information for all twelve months of the calendar year for each employee.

The 1094-C is the transmittal form that must be filed with the Form 1095-C.

Form 1095-B is used to report certain information to the IRS and to taxpayers about individuals who are covered by minimum essential coverage and therefore are not liable for the individual shared responsibility payment.

The 1094-B is the transmittal form that must be filed with the Form 1095-B.

The employer files 1094-C and 1095-C to report the information under sections 6055 and 6056.  The 1094-C will be used to report the summary information for each employer and to transmit 1095-C to the IRS.  The two forms are also used to determine whether the employer owes a payment under the employer shared responsibility provisions under section 4980H.  

Employers who offer an employer-sponsored self-insured plan also use Form 1095-C to report information to the IRS and to employees about individuals who have minimum essential coverage under the employer plan.

The 1094-B and 1095-B is also for self-insured plans but for small groups not subject to the employer shared responsibility provisions.  In addition, the health insurance issuers or carriers must file Form 1095-B for most health insurance coverage, including individual market coverage and insured coverage sponsored by employers.  

Controlled group rules determine if two or more companies are treated as one for employee benefit purposes.

Controlled Groups Defined

Parent-subsidiary: Companies owning 80% or more of another company, have a parent-subsidiary relationship. This relationship is more common among larger companies.

Brother-sister: Brother-sister relationships, more common among small businesses, involve two or more companies. Five or fewer individuals own 80% or more of each company and the same five or fewer individuals effectively own over 50% of each entity.  This is determined by adding up the lowest ownership percentage for each owner.

Businesses that don’t fall within the constructs of controlled groups still need to be cautious.  If they share services or employees with one another, they may be treated as one employer under the affiliated service group rules.

Companies big or small could fall within the boundaries of these rules.  Not only do they extend to corporations, but they also apply to other business forms including sole proprietorships, partnerships and limited liability companies.

ACA Implications

In counting employees, the ACA applies IRS and controlled group rules for compliance determination.  In other words, parent-subsidiary and brother-sister companies are considered when determining employee thresholds. If two separate businesses each have 25 full-time equivalent employees and ownership consists of a parent/subsidiary or brother/sister controlled group, those businesses meet the 50 full-time employee thresholds.


Cancelling COBRA coverage is not a qualifying event for a Special Enrollment Period (SEP).  Therefore, they will not be able to apply for coverage in the Marketplace until open enrollment, or, until their COBRA expires, or, they qualify for a SEP in another way, whichever occurs first.