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The health reform law imposes a number of fees, taxes and other assessments on health insurance companies and sponsors of self-funded health plans to help subsidize a number of endeavors. One such fee funds the Patient-Centered Outcomes Research Institute (PCORI).
The PCORI fee is $2.17 per covered life for plan years ending on or after Oct. 1, 2015, and must be reported on (and remitted with) IRS Form 720 by Aug. 1, 2016 (the deadline is July 31, but since July 31 falls on a weekend, the form is due by the next business day, Aug. 1). For self-funded plans, the employer/plan sponsor will be responsible for submitting the fee and accompanying paperwork to the IRS. Third-party reporting and payment of the fee is not permitted for self-funded plans.
The process for remitting payment by sponsors of self-funded plans is described in more detail below.
The IRS will collect the fee from the insurer or, in the case of self-funded plans, the plan sponsor in the same way many other excise taxes are collected. The fees are reported and paid annually on IRS Form 720 by July 31 of the year following the last day of the plan year. This year the fee is due by Aug. 1.
The fee due on Aug. 1, 2016 is $2.17 per covered life for plan years ending before Oct. 1, 2016, and on or after Oct. 1, 2015. For plan years ending before Oct. 1, 2015, the fee due on Aug. 1, 2016, is $2.08 per covered life under the plan. IRS regulations provide three options for determining the average number of covered lives (actual count, snapshot and Form 5500 method).
The Form 720 must be filed by July 31 (Aug. 1 in 2016) of the calendar year immediately following the last day of the plan year. For example, calendar year plans will owe a fee of $2.17 per covered life by Aug. 1, 2016. Plans that operate on years that begin the first day of any month from February through October will be paying a $2.08 per covered life fee with the Aug. 1, 2016, filing.
The U.S. Department of Labor believes the fee cannot be paid from plan assets. In other words, the PCORI fee must be paid by the plan sponsor; it is not a permissible expense of a self-funded plan and cannot be paid in whole or part by participant contributions. The PCORI expense should not be included in the plan’s cost when computing the plan’s COBRA premium. The IRS has indicated the fee is, however, a tax-deductible business expense for employers with self-funded plans.
The filing and remittance process to the IRS is straightforward and is largely unchanged from last year. On page two of Form 720, under Part II, the employer needs to designate the average number of covered lives under its “applicable self-insured plan.” The number of covered lives is multiplied by $2.17 (for plan years ending on or after Oct. 1, 2015) to determine the total fee owed to the IRS.
The Payment Voucher (720-V) should indicate the tax period for the fee is “2nd Quarter.” Failure to properly designate “2nd Quarter” on the voucher will result in the IRS’s software generating a tardy filing notice, with all the incumbent aggravation on the employer to correct the matter with IRS.
The Affordable Care Act will require Applicable Large Employers (i.e. large employers subject to the employer mandate) and employers sponsoring self-insured plans to comply with new annual IRS reporting requirements. The first reporting deadline will be February 28, 2016 as to the data employers collect during the 2015 calendar year. The reporting provides the IRS with information it needs to enforce the Individual Mandate (i.e. individuals are penalized for not having health coverage) and the Employer Mandate (i.e. large employers are penalized for not offering health coverage to full-time employees). The IRS will also require employers who offer self-insured plans to report on covered individuals.
Large employers and coverage providers must also provide a written statement to each employee or responsible individual (i.e. one who enrolls one or more individuals) identifying the reported information. The written statement can be a copy of the Form.
The IRS recently released draft Forms 1094-C and 1095-C and draft Forms 1094-B and 1095-B, along with draft instructions for each form.
Which Forms Do I File?
When?
Statements to employees and responsible individuals are due annually by January 31. The first statements are due January 31, 2016.
Forms 1094-B, 1095-B, 1094-C and 1095-C are due annually by February 28 (or by March 31, if filing electronically). The first filing is due by February 28, 2016 (or March 31, 2016, if filing electronically).
Even though the forms are not due until 2016, the annual reporting will be based on data from the prior year. Employers need to plan ahead now to collect data for 2015. Many employers have adopted the Look Back Measurement Method Safe Harbor (“Safe Harbor”) to identify full-time employees under the ACA. The Safe Harbor allows employers to “look back” on the hours of service of its employees during 2014 or another measurement period. There are specific legal restrictions regarding the timing and length of the periods under the Safe Harbor, so employers cannot just pick random dates. Employers also must follow various rules to calculate hours of service under the Safe Harbor. The hours of service during the measurement period (which is likely to include most of 2014) will determine whether a particular employee is full-time under the ACA during the 2015 stability period. The stability period is the time during which the status of the employee, as full-time or non-full-time, is locked in. In 2016, employers must report their employees’ full-time status during the calendar year of 2015. Therefore, even though the IRS forms are not due until 2016, an employee’s hours of service in 2014 will determine how an employer reports that employee during each month of 2015. Employers who have not adopted the Safe Harbor should consider doing so because it allows an employer to average hours of service over a 12-month period to determine the full-time status of an employee. If an employer does not adopt the Safe Harbor, the IRS will require the employer to make a monthly determination, which is likely to increase an employer’s potential exposure to penalties.
What Must the Employer Report?
Form 1095-C
There are three parts to Form 1095-C. An applicable large employer must file one Form 1095-C for each full-time employee. If the applicable large employer sponsors self-insured health plans, it must also file Form 1095-C for any employee who enrolls in coverage regardless of the full-time status of that employee.
Form 1095-C requires the employer to identify the type of health coverage offered to a full-time employee for each calendar month, including whether that coverage offered minimum value and was affordable for that employee. Employers must use a code to identify the type of health coverage offered and applicable transition relief.
Employers that offer self-insured health plans also must report information about each individual enrolled in the self-insured health plan, including any full-time employee, non-full-time employee, employee family members, and others.
Form 1094-C
Applicable large employers use Form 1094-C as a transmittal to report employer summary information and transmit its Forms 1095-C to the IRS. Form 1094-C requires employers to enter the name and contact information of the employer and the total number of Forms 1095-C it submits. It also requires information about whether the employer offered minimum essential coverage under an eligible employer-sponsored plan to at least 95% of its full-time employees and their dependents for the entire calendar year, the number of full-time employees for each month, and the total number of employees (full-time or non-full-time) for each month.
Form 1095-B
Employers offering self-insured coverage use Form 1095-B to report information to the IRS about individuals who are covered by minimum essential coverage and therefore are not liable for the individual shared responsibility payment. These employers must file a Form 1095-B for eachindividual who was covered for any part of the calendar year. The employer must make reasonable efforts to collect social security numbers for covered individuals.
Form 1094-B
Employers who file Form 1095-B will use Form 1094-B as a transmittal form. It asks for the name of the employer, the employer’s EIN, and the name, telephone number, and address of the employer’s contact person.
Failure to Report – What Happens?
The IRS will impose penalties for failure to timely provide correct written statements to employees. The IRS will also impose penalties for failure to timely file a correct return. For the 2016 reporting on 2015 data, the IRS will not impose a penalty for good faith compliance. However, the IRS specified that good faith compliance requires that employers provide the statements and file the returns.