ACA Reporting Software/Vendor Setup: What’s With These Questions About Qualifying Offers, the 98% Offer Method, and Other Stuff? December 2015 • Lockton ® Benefit Group L O C K T O N C O M P A N I E S ED FENSHOLT, J.D. Senior Vice President Director of Compliance Services Lockton Benefit Group 816.960.9775 [email protected]AUTHORS BRAD MANDACINA, CEBS Assistant Vice President Director of HR Tech & Outsourcing Lockton Benefit Group 816.751.2374 [email protected]Many employers working with vendors to accomplish Affordable Care Act (ACA) reporting have received questionnaires from their vendors, making inquiries related to how the employer is complying with the employer mandate. Some of these questions include who the employer treats as eligible, how the employer determines full-time employees, what periods of time the employer is using for measurement, administrative and stability periods (where the employer is using the look-back measurement method), and more. Some of these questions are bewildering to the employer and often are not well explained in the vendor’s questionnaire. The ambiguous questions we see most often are those for which the vendor needs answers to complete Line 22 on the employer’s Form 1094-C (although the questionnaire typically doesn’t refer to Line 22). These questions ask the employer about the following: Qualifying Offers Qualifying Offer Transition Relief Section 4980H Transition Relief The 98% Offer Method Lockton comment: The four bullets mentioned above offer merely optional safe harbor shortcuts to ACA reporting. There are no negative implications for failing to use or satisfy any of these safe harbors, and the shortcuts are sometimes not worth the effort.
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ACA Reporting Software/Vendor Setup: What’s With These Questions About Qualifying Offers,the 98% Offer Method, and Other Stuff?December 2015 • Lockton® Benefit Group
L O C K T O N C O M P A N I E S
ED FENSHOLT, J.D.Senior Vice President
Director of Compliance ServicesLockton Benefi t Group
Many employers working with vendors to accomplish Affordable
Care Act (ACA) reporting have received questionnaires from their
vendors, making inquiries related to how the employer is complying
with the employer mandate. Some of these questions include who
the employer treats as eligible, how the employer determines
full-time employees, what periods of time the employer is using
for measurement, administrative and stability periods (where the
employer is using the look-back measurement method), and more.
Some of these questions are bewildering to the employer and often are not well explained in the vendor’s questionnaire. The ambiguous questions we see most often are those for which the vendor needs answers to complete Line 22 on the employer’s Form 1094-C (although the questionnaire typically doesn’t refer to Line 22). These questions ask the employer about the following:
� Qualifying Offers
� Qualifying Offer Transition Relief
� Section 4980H Transition Relief
� The 98% Offer Method
Lockton comment: The four bullets mentioned above offer merely optional safe harbor shortcuts to ACA reporting. There are no negative implications for failing to use or satisfy any of these safe harbors, and the shortcuts are sometimes not worth the effort.
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Other ambiguous questions we see on implementation questionnaires pertain to:
� Non-Calendar-Year Transition Relief.
� Non-Calendar-Year Start Date.
� First-Year Relief.
� No Dependent Coverage Transition Relief.
HERE’S WHAT THESE REFERENCES MEAN:
Qualifying Offers
Typically, there is at least one question on setup questionnaires concerning whether the employer is “using the qualifying offer method” or has made a “qualifying offer” to one or more full-time employees as reflected on the Forms 1095-C prepared for the employees. Most employers are not using the qualifying offer method.
A “qualifying offer” is an offer by the employer that meets specific criteria. The qualifying offer concept was invented by the IRS as a sort of reward to the employer for offering decent coverage to one or more full-time employees at a generously subsidized rate, but the reward is complicated and sometimes not particularly meaningful.
For an offer of coverage to a full-time employee to be a qualifying offer—that is, for the employer to answer “yes” to the vendor’s question about whether the employer made a qualifying offer—employee-only coverage must provide minimum value (at least 60 percent actuarial value) and must be offered to the employee at no more than 9.5 percent of the federal mainland poverty level (roughly $93 per month for 2015). The offer must include the opportunity to enroll the spouse and children, through the month the child attains age 26, in at least minimum essential coverage, or MEC (i.e., employer-based coverage more robust than “excepted benefits” such as typical dental or vision coverage).
December 2015 • Lockton Benefit Group
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The reward comes in two parts, only one of which might be available.
If the employer made a qualifying offer to a full-time employee for some or all months in 2015 for which the employer had an employer mandate obligation regarding the employee, the employer may choose to report that fact (it is not required to report it) by using Code 1A on line 14 of the employee’s Form 1095-C. If the employer chooses to use Code 1A for one or more months, it is allowed to skip line 15 (employee premium cost for the least expensive minimum value option offered to him or her) for those months; in fact, the employer must skip line 15 for those months.
The second part of the reward is more contingent. If (i) the employer made a qualifying offer for all months in 2015 for which the employer had an employer mandate obligation regarding the employee and (ii) the employee was not enrolled in self-insured coverage of the employer for even a single day, the employer is permitted to supply the employee, in lieu of the Form 1095-C, an abbreviated statement regarding the employer’s coverage offer. But the employer must still send the actual 1095-C to the IRS, and so cannot entirely dodge completing a Form 1095-C, even though it made a qualifying offer.
Lockton comment: Importantly, an employer can satisfy the employer mandate without making a qualifying offer. And as noted above, if the employer makes a qualifying offer, it is not required to report that fact. The employer might choose instead to use Code 1E (minimum value offer to the employee, and at least minimum essential coverage to spouse and children). While using Code 1E requires the employer to complete line 15 on the employee’s Form 1095-C, line 15 is an easy line to complete.
Qualifying Offer Transition Relief
This is similar in several respects to the qualifying offer method: The employer isn’t required to use or report this method, it’s complicated, and it doesn’t offer much in the way of a reward. Most employers are not using the qualifying offer method transition relief.
The employer might answer “yes” to the vendor’s question about qualifying offer transition relief if, with respect to one or more full-time employees, the employer did not make a qualifying offer for all 12 months of the calendar year, but for the months with respect to which the employee did not receive a qualifying offer, the employer in fact made a qualifying offer to at least 95 percent of its full-time employees with respect to whom the employer had an employer mandate obligation.
Where this is the case, the employer may choose (it’s not required to do so) to insert Code 1I on line 14 of the employee’s Form 1095-C for the months for which the employee did not receive a qualifying offer, but for which the employer made a qualifying offer to at least the 95 percent.
Again, the reward for this complexity comes in two parts. If the employer chooses to use Code 1I for one or more months, it is allowed to skip line 15 for those months; in fact, it must skip line 15 for those months.
Second, if the employee was not enrolled in self-insured coverage of the employer for even a single day, the employer is permitted to supply the employee, in lieu of the Form 1095-C, an abbreviated statement regarding the employer’s coverage offer. But the employer must still send the 1095-C to the IRS.
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4980H Transition Relief (and/or “4980H Transition Relief Controlled Group Size”)
There are two situations where the employer would say “yes” to the vendor’s question about tax code section 4980H transition relief. Most Lockton clients do not qualify for 4980H transition relief. The two situations are:
1. The employer’s controlled or affiliated service group (what we refer to as the “corporate family tree”) had between 50-99 full-time employees/full-time equivalent employees on the average business days in 2014. The relief the employer claims is relief from the employer mandate’s obligation to offer coverage to its full-time employees or risk penalties. The employer is not relieved of its ACA reporting obligation. Some vendors refer to this as “50-99 Transition Relief.”
2. The employer’s corporate family tree had at least 100 full-time employees/full-time equivalent employees on the average business days in 2014, and the employer is “paying” rather than “playing” under the employer mandate. In this latter case, the relief the employer receives is avoiding the $2,080 per year “nuclear” penalty with respect to its first 80 full-time employees. Some vendors refer to this as “100 or More Transition Relief.”
Some Lockton clients are in corporate family trees small enough to qualify for the relief in (1) above, but most Lockton clients are too large to qualify. With regard to the relief in (2) above, very few employers are “paying” rather than “playing” under the employer mandate, and thus won’t qualify for or need the relief.
If the employer qualifies for one of the relief options described above, the ACA reporting vendor will want to know the size of the employer’s corporate family tree. That information will, of course, tell the vendor whether the employer is claiming the relief in (1) above or (2) above.
98% Offer Method
An employer may say “yes” to the vendor’s question about meeting the 98% offer method if, for all months, it offered minimum value and affordable coverage to at least 98 percent of its full-time employees with respect to whom it had an obligation to supply a Form 1095-C, and it offered at least minimum essential coverage to the employees’ children through the month they attain age 26. The employer may disregard employees in a “limited non-assessment period,” such as an initial measurement or administrative period or the first three full calendar months of a new full-time employee’s employment, as long as the new full-time employee receives a coverage offer by the first day of the fourth full calendar month.
Some Lockton clients qualify for the 98% offer method. However, it buys relief from only one requirement: the obligation to report the number of full-time employees, by month, in column (b) of Form 1094-C.
December 2015 • Lockton Benefit Group
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Other questions often posed by vendors refer to the following:
Non-Calendar-Year Transition Relief
This relief allows some employers with non-calendar-year healthcare plans to avoid the employer mandate’s coverage offer obligation prior to the beginning of the plan year that commences in 2015, provided the employer satisfies the mandate on the first day of that plan year. See discussion on page 13, Compliance News, Spring 2014. The employees must still meet the ACA’s employer mandate reporting obligation for all of 2015, however. Many Lockton clients qualify for this relief.
Non-Calendar-Year Start Date
This question simply asks for the start date of the employer’s non-calendar-year plan(s). This information is optional for 2015 on the employer’s Form 1094-C. It may serve more than one purpose, but we presume the IRS is primarily interested in this information to help it make sense of the way an employer claiming non-calendar-year transition relief reports coverage offers for 2015.
For example, if an employer indicates its plan runs on a July 1–June 30 plan year basis, that information helps explain why the employer might have used Code 1H (no coverage offer) for some full-time employees from January through June 2015, and then indicated a coverage offer for the months of July through December.
First-Year Relief
A reference to “first-year relief ” refers to a free pass under the employer mandate for the months of January through March for the first year an employer is big enough to be considered subject to that mandate based on the number of its full-time and full-time equivalent employees in the prior year. Most Lockton clients don’t qualify for this relief.
No Dependent Coverage Transition Relief
Recall that the first obligation under the employer mandate is to offer at least minimum essential coverage to full-time employees and their children through the month the child attains age 26. This “no dependent offer relief ” refers to relief (for 2015) for employers that don’t offer coverage to full-time employees’ children in 2015, or offer them something short of MEC, but are working to install compliant coverage for 2016.
Most Lockton clients have long offered coverage to employees’ children. Often, however, that coverage (particularly self-insured coverage) terminates on the children’s 26th birthday rather than at the end of the month. It’s not clear whether employers who offer at least MEC to children but terminate it on the 26th birthday, rather than at month’s end, can qualify for this relief. In any event, employers whose plans terminate child coverage on the 26th birthday will likely want to modify those plans to provide for coverage through the end of that month, and do so as quickly as possible in order to satisfy that first obligation under the employer mandate.
