United States: The Affordable Care Act's Reporting Requirements For Carriers And Employers: The Basics (Part 3 Of 24)

Alden Bianchi, Chair of Mintz Levin's Employee Benefits & Executive Compensation Practice, will provide a weekly installment on the complex reporting obligations outlined by the Affordable Care Act for health insurance carriers and employers. In this 24-week series, Alden will explain key requirements as he counts down to the January 2016 ACA reporting deadlines. This is the third installment of the series.

The purpose of IRS Form 1095-C is to furnish information to the IRS about an applicable large employer's compliance with the Affordable Care Act's (ACA) employer shared responsibility rules. The form also solicits information that the IRS will use to track both compliance by employees and their dependents with the Act's individual mandate and their eligibility for premium tax subsidies. Much of the required data is provided in responses to lines 14, 15 and 16 (Part II) of the form. An understanding of what is reported in these three lines and how they interact, therefore, is essential to an understanding of Internal Revenue Code § 6056, which Form 1095-C supports.


As we reported in the first post of this series, the ACA's employer shared responsibility rules require applicable large employers to furnish statements (and transmit copies to the IRS along with certain transmittal information) to each individual who was a full-time employee for at least one month during the year. Employers must disclose whether each full-time employee and his or her spouse and/or dependents were offered health coverage, and, if so, report the lowest cost of individual coverage available to the employee. Similar information must also be reported with respect to part-time employees who are offered and who accept coverage. (For a comprehensive treatment of these and related requirements please see  Information Reporting Under the Affordable Care Act: I.R.C. §6055 and §6056.)

Form 1095-C Part I

The information to be provided to covered individuals is included on new Form 1095-C. Part I of the form (consisting of lines 1 through 13) asks for information about the employee and the reporting entity. The Act's employer shared responsibility rules apply to applicable large employers, which may consist of multiple legal entities under common control (e.g., a parent company and a series of wholly-owned subsidiaries). Final regulations implementing Code § 6056 impose reporting obligations on each legal entity in the controlled group, which the regulations refer to as the "applicable large employer member" (or "ALE Member"). Thus, each ALE Member will be responsible for its own transmittals on Form 1094-C.

Form 1095-C Part II

Form 1095-C Part II includes lines 14, 15 and 16. In each instance, the requested information is reported month-by-month. There is an option in each case, however, to apply a single response covering all 12 months where the information is the same for all 12 months.

  • Line 14

Line 14 asks about the coverage, if any, offered to the employee and his or her spouse and/or dependents. The employer's response is made in the form of a code, which are set out and defined in the instructions to the Form 1095-C (available here).

The ACA's employer shared responsibility rules establish two layers of penalties.

Under the first, an employer has the choice to either offer health insurance coverage to substantially all of its full-time employees or to pay a potentially large fine. This penalty is imposed under Code § 4980H(a), with which line 14 is unconcerned. Information about compliance with Code § 4980H(a) is instead provided in Part III of Form 1094-C. The second layer of penalty, under Code § 4980H(b), does concern line 14 and arises in instances in which an employer has made an offer of coverage sufficient to comply with Code § 4980H(a) but the coverage is either unaffordable or fails to provide minimum value. (A plan that provides minimum value is roughly synonymous with a major medical plan.) It is anticipated that the Code § 4980H(b) penalty will be much less than the penalty imposed under Code § 4980H(a).

A preventive-services-only plan is an example of a plan that fails to provide minimum value. An offer of such a plan qualifies as an offer of coverage for Code § 4980H(a) purposes. It does not prevent exposure to penalties under Code § 4980H(b), however. An offer of a preventive-services-only plan would be reported on line 14 using code 1F ("Minimum essential coverage NOT providing minimum value offered to employee, or employee and spouse or dependent(s), or employee, spouse and dependents").

If the employer offers a minimum value plan that includes the option to include spouses and dependents, the offer would be reported using code 1A ("Minimum essential coverage providing minimum value offered . . .") or 1E ("Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse"), as appropriate.

An employer need not offer coverage to a spouse in order to avoid Code § 4980H penalties. But a spouse that is included in the employer's offer may, as a consequence, be rendered ineligible for premium subsidies from a public exchange, i.e., "firewalled" as explained below. Here, information that is unnecessary for Code § 4980H purposes is being used to assess compliance with Code § 36B, which relates to premium subsidies.

For purposes of responding to line 14, an employer is deemed to offer health coverage for a month only if it offers health coverage that would provide coverage for every day of that calendar month. Thus, in the case of an employee terminated mid-month, the line 14 reporting code is code 1H (No offer of coverage). This might appear contrary to the final Code § 4980H regulations under which an employer is treated as having offered the employee health coverage for the month if the employee would have been offered health coverage for the entire month had he or she been employed for the entire month. This apparent inconsistency is accommodated in line 16 (explained below).

The rule in Part II, line 14 reporting (requiring coverage to be provided for every day of the calendar month) stands in marked contrast to other reporting. Form 1095-C, Part III applies to sponsors of self-funded plans. (Sponsors of fully-insured plans do not fill out Part III.) For Part III purposes, an employer reports an individual as having coverage under the plan for the calendar month if the individual was covered for any day of the calendar month. The difference is that Part III reports offers of minimum essential coverage that would ordinarily appear on Form 1094-C and reports compliance with the ACA's individual mandate. For individual mandate purposes, coverage on any day of the month is sufficient to escape a penalty under Code § 5000A.

  • Line 15

Line 15 requires the employer to provide the employee's share of the lowest cost monthly premium for self-only coverage under an employer-sponsored group health plan that provides "Minimum Value." The IRS wants to know this because a low- or moderate-income employee who might otherwise qualify for subsidized coverage from a public exchange or marketplace is rendered ineligible if he or she has an offer of employer coverage that provides minimum value and that is affordable. (Such an employee is sometimes said to be "firewalled" from receiving a premium subsidy.) Line 15 enables the IRS to determine whether coverage is affordable and, as a consequence, whether the employee is firewalled. In combination with line 14, it also enables the IRS to determine whether a spouse or dependent is also firewalled.

  • Line 16

Line 16 asks for a safe harbor or other code that would excuse the ALE Member from making an offer of coverage. An ALE Member is not necessarily exposed to Code § 4980H(b) penalties in each instance in which it fails to make an offer of coverage to a full-time employee and his or her dependents. The final regulations under Code § 4980H(b) set out a series of instances in which an employer will not incur a penalty despite failing to offer coverage. These instances are referred to as "limited non-assessment periods." (Please see our previous post on the subject of limited non-assessment periods). In instances in which there is no offer of coverage in a particular month, line 16 provides the employer with the opportunity to explain why it is not subject to a penalty. For example, in the line 14 example above relating to mid-month terminations, the line 14 reporting of "no offer of coverage" would be balanced by the code 2B ("[E]mployee is a full-time employee for the month [and] whose offer of coverage (or coverage if the employee was enrolled) ended before the last day of the month solely because the employee terminated employment during the month . . ."). Another common example involves waiting periods, for which the appropriate code is 2D ("Employee in a section 4980H(b) Limited Non-Assessment Period").


In the weeks that follow, we will consider how Form 1095-C, Part II would be completed for some common situations involving progressively different and more challenging facts. We will also consider issues involving third party offers of coverage (including coverage provided by staffing firms, PEOs, multi-employer plans and MEWAs), COBRA, and reporting in the case of mid-year mergers, acquisitions, and other corporate reorganizations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Alden J. Bianchi
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