Large employers who sponsor group medical plans had high hopes that the new administration would eliminate or reduce the compliance burdens associated with Affordable Care Act (ACA), sometimes called “Obamacare,” particularly after President Trump issued an executive order directing certain federal agencies to provide relief from the financial burdens imposed by the ACA. However, these hopes were recently dashed by the Internal Revenue Service (IRS) who confirmed that the employer mandate penalties of the ACA continue to apply.
- Overview of the Employer Mandate
The ACA requires large employers to either offer their full-time employees group health coverage that is affordable and provides minimum value (compliant coverage) or pay a penalty. The determination of whether an employer is a large employer is determined on a controlled group basis, meaning that the employees of related entities as defined under section 414(b), (c) and (m) of the Internal Revenue Code of 1986, as amended (the code), referred to as a Controlled Group, are combined. Thus, four related entities who are members of the same controlled group who only employ 20 full-time employees each will be a large employer for purposes of the ACA.
A full-time employee for purposes of the ACA means an employee who regularly works 30 or more hours a week. However, for purposes of determining large employer status, part-time employees are converted into full-time equivalent employees. This means an employer cannot evade application of the employer mandate by only employing part-time employees.
Notably, the ACA does not require a large employer to provide compliant coverage. However, those large employers who chose not to provide such coverage or who do not provide compliant coverage to at least 95 percent of its full-time employees will be subject to penalties if at least one full-time employee obtains subsidized individual coverage under the public marketplace (i.e., the state or federal exchanges [the exchange]). The penalties are determined separately for each entity who is a member of a controlled group based on the coverage it provides its full-time employees.
To determine compliance with the employer mandate, large employers are required to file tax returns annually with the IRS that disclose whether they offered compliant coverage to their full-time employees. This reporting typically made by large employers on IRS Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage. Large employers are also required to send the Form 1095-C for each employee to that employee.
- IRS Guidance
In Information Letters 2017-0010 and 2017, the IRS advised that the executive order did not amend the ACA, and that its provisions with respect to the employer mandate, including the reporting requirements, continue to apply in full force and effect until changed by Congress. Given recent efforts to repeal and replace the ACA, it is not likely that these changes will occur any time soon.
- Action Steps
In light of the ongoing applicability of the employer mandate, large employers should continue to improve and follow their ACA coverage and reporting procedures. Those large employers who employ variable employees (i.e., those employees who it is not clear will work enough hours to be considered full-time) should continue to use ACA approved methods to track the hours of those employees to determine whether any such employees must be treated as full-time for compliant coverage and IRS reporting purposes. Likewise, large employers should be preparing for the reporting of health plan coverage information for 2017, which is due the first quarter of 2018, by collecting the required data for such reporting or ensuring that their payroll processors or other vendors are collecting such data for them. To assist in this process, the IRS released on August 3, 2017, draft versions of Form 1094-C and Form 1095-C to be filed by large employers in 2018, which are available at www.irs.gov/pub/irs-dft/p5223--dft.pdf.
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Felicia Finston is a founding partner of Wilkins Finston Friedman Law Group, a boutique firm practicing employee benefits and executive compensation law exclusively. Felicia has over 30 years of experience handling benefit and compensation issues for Fortune 500 and other public and private companies and tax-exempt entities. Felicia has been listed in The Best Lawyers of America® for over 10 years and was honored by The Best Lawyers of America as the 2014 Dallas Litigation – ERISA “Lawyer of the Year.” In 2011 and 2016 she was honored by Best Lawyers as the Dallas Employee Benefits “Lawyer of the Year” as well.
