In addition to imposing substantive requirements on health insurance issuers in the group and individual markets and employer-sponsored group health plans, the Patient Protection and Affordable Care Act (Act) imposes three notice requirements that are of particular interest to employers.

• Under Internal Revenue Code (Code) section 6051(a)(14), employers must report the value of coverage under an employer-sponsored group health plan on employees’ Form W-2.

• Under Code section 6055, health insurance issuers, certain employers, and others that provide “minimum essential coverage” to individuals must report to the Internal Revenue Service (IRS) information about the type and period of coverage and furnish statements to covered individuals.

• Under Code section 6056, “applicable large employers” (i.e., those with 50 or more full-time and full-time equivalent employees on average business days during the previous calendar year) must report to the IRS information about their compliance with the employer shared responsibility (a/k/a “pay-or-play”) provisions of the Act. Section 6056 also requires those employers to furnish statements to employees.

The Form W-2 reporting requirement took effect beginning with 2012. (This requirement is not further discussed in this advisory.) The Code sections 6055 and 6056 reporting requirements are effective for years beginning after December 31, 2013. But in Notice 2013-45, the Treasury Department and IRS delayed these rules for a year, along with the employer shared responsibility rules that apply to applicable large employers. (Please see our July 10, 2013 client advisory for a discussion of Notice 2013-45). As a result, the 6055 and 6056 reporting rules will take effect for years beginning after December 31, 2014.

In Notices 2012-32 and 2012-33, the IRS invited comments on the 6055 and 6056 reporting requirements. (Please see our May 8, 2013 client advisory for a discussion of Notices 2012-32 and 2012-33). More recently, on September 5, the Treasury Department and IRS issued proposed regulations under both requirements.

Code Section 6055

Code section 6055 requires information reporting by any person that provides “minimum essential coverage” to an individual during a calendar year. Under other provisions of the Act, U.S. citizens and green card holders are generally required to maintain minimum essential coverage or pay a tax penalty. Minimum essential coverage means and includes coverage under Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), TRICARE, the veteran’s health care program, the Peace Corps program, a government plan (local, state, federal) including the Federal Employees Health Benefits Program (FEHBP), any plan established by an Indian tribal government, and coverage in the individual, small group or large group markets. It also includes coverage under an “eligible employer-sponsored plan.” An eligible employer-sponsored plan for this purpose is any group health plan other than a plan that provides only excepted benefits (e.g., stand-alone vision or dental, hospital or fixed indemnity). HIPAA excepted benefits are not minimum essential coverage.

The information reported under section 6055 can be used by individuals and the IRS to verify whether a low- or moderate-income individual qualifies for premium tax credits to enable him or her to purchase subsidized health insurance through a public exchange.

Code § 6055 provides that all information returns reporting minimum essential coverage must contain:

1. The name, address, and taxpayer identification number of the primary insured and each other individual covered under the policy or plan;

2. The dates each individual was covered under minimum essential coverage during the calendar year;

3. In the case of health insurance coverage, whether the coverage is a qualified health plan offered through a public insurance exchange;

4. If the coverage is a qualified health plan offered through a public exchange, the amount (if any) of any advance payment of the premium tax credit or of any cost-sharing reduction; and

5. Other information that the Secretary of Health and Human Services (HHS) requires.

The Proposed Section 6055 Regulation

The proposed section 6055 regulation refers to the entities subject to the Code section 6055 reporting rules — i.e., those that provide minimum essential coverage — as “reporting entities.” They include health insurance issuers, plan sponsors of self-insured group health plan coverage, the executive department or agency of a governmental unit that provides coverage under a government-sponsored program (e.g., Medicare, Medicaid, TRICARE, and CHIP), and any other person that provides minimum essential coverage to an individual. For calendar years beginning after December 31, 2014, reporting entities must:

• File an annual information return with the Internal Revenue Service that includes the information specified in the proposed regulations; and

• Furnish to each “responsible individual” a written statement showing contact information and the information reported to the IRS, with copies to the IRS.

Where self-funded plans are concerned, the proposed regulations place the compliance obligations on the “plan sponsor,” which is the employer in the case of a single-employer plan, or the joint board of trustees for a multiemployer plan. In the case of a self-insured group health plan covering employees of related entities, each employer must report for its employees. Thus, separate reporting is required by each controlled group member. However, one member of the group may assist the other members by filing returns and furnishing statements on behalf of all members. Where a self-insured group health plan covers employees of two or more unrelated entities, i.e., a multiple employer welfare arrangement, each separate employer must report for its employees.

Separate rules are provided in the case of self-funded plans maintained by government employers. Generally, a government employer that maintains a self-insured group health plan is permitted to designate another governmental unit, or an agency or instrumentality, as the reporting entity.

According to the proposed rules, the information that reporting entities must provide to the Internal Revenue Service includes:

1. Name, address, and employer identification number (EIN) for the person required to file the return;

2. Name, address, and Taxpayer Identification Number (TIN), or date of birth if a TIN is not available, of the responsible individual;

3. Name and TIN, or date of birth if a TIN is not available, of each individual covered under the policy or program;

4. For each covered individual, the months for which, for at least one day, the individual was enrolled in coverage and entitled to receive benefits; and

5. Any other information specified in forms, instructions, or published guidance.

Where coverage is provided by a health insurance issuer through a group health plan, the reporting entity must also report (1) the name, address, and EIN of the employer sponsoring the plan; (2) whether the coverage is a qualified health plan through the Small Business Health Options Program (SHOP) and the SHOP’s unique identifier; and (3) other information specified in forms, instructions, or published guidance.

Recognizing that employers may encounter difficulty in obtaining TINs, penalties are waived if the employer can demonstrate that it acted responsibly and that the failure was due to “significant mitigating factors or events” beyond the employer’s control. In general, an employer is deemed to have acted responsibly if after an initial, unsuccessful request for a TIN (for example, at the time of enrollment), the employer makes two consecutive annual TIN solicitations. Employers are also permitted to report date of birth if a TIN is not available. But this alternative is available only if the employer has made reasonable efforts to obtain the TIN.

Health insurance issuers are not required to file information returns for individual market coverage through a public exchange. The preamble to the regulation acknowledges that “the IRS and individuals will receive information necessary to administer or comply” with the individual mandate from other sources. This exemption does not apply to qualified health plans provided through SHOP exchanges or any other group market coverage. The proposed regulations also clarify that reporting entities may use third parties to facilitate filing returns and furnishing statements to comply with reporting requirements under both section 6055 and 6056, but they caution that this does not transfer the potential liability for failure to report information and furnish statements.

Reporting is not required with respect to health savings accounts, which are not minimum essential coverage in any case. Nor is it required for health reimbursement arrangements that supplement minimum essential coverage.

Returns and transmittal forms must be filed on a new Form 1095-B (or an acceptable substitute) on or before February 28 (March 31 if filed electronically) of the year following the calendar year in which the reporting entity provided minimum essential coverage to an individual. Thus, the first returns submitted by reporting entities will be in early 2016. Extensions of time are permitted under long-standing rules governing information returns generally. Written statements must be provided to responsible persons by January 31 of the year following the reporting year.

The proposed 6055 regulations include a rule permitting the reporting entities to furnish information returns electronically in lieu of a paper format, but only if the recipient affirmatively consents. The consent may be made electronically “in any manner that reasonably demonstrates that the recipient can access the statement in the electronic format in which it will be furnished.” Alternatively, the consent may be made in a paper document that is confirmed electronically. The recipient must also be allowed to withdrawal his or her consent.

Code Section 6056

The purpose of Code section 6056 is to enable the IRS to enforce the Act’s employer shared responsibility rules, to support determinations of eligibility for premium tax credits, and to establish compliance with the individual mandate. In the case of the latter two items, the Code section 6056 rules overlap other notice and reporting requirements. Recognizing this to be the case, the Act encourages that to “the maximum extent feasible,” regulators “permit combined reporting under section 6056, section 6051 [and] section 6055.”

Code section 6056 requires an applicable large employer to file a return with the IRS that reports for each employee who was a full-time employee for one or more months during the calendar year certain information about the health care coverage the employer offered to that employee (or, if applicable, that the employer did not offer health care coverage to that employee). Section 6056 also requires employers to provide each full-time employee by January 31 of the calendar year following the calendar year for which the return must be filed a statement that includes the information reported to the IRS. The return used to satisfy the requirements under Code § 6056 must:

1. Include the name and EIN of the applicable large employer;

2. Include the date the return is filed;

3. Certify whether the applicable large employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan and, if so, certify

   1. The duration of any waiting period with respect to such coverage;

   2. The months during the calendar year when coverage under the plan was available;

   3. The monthly premium for the lowest cost option in each enrollment category under the plan; and

   4. The employer’s share of the total allowed costs of benefits provided under the plan.

4. Report the number of full-time employees for each month of the calendar year;

5. Report, for each full-time employee, the name, address, and TIN of the employee and the months (if any) during which the full-time employee (or any dependents) were covered under the eligible employer-sponsored plan; and

6. Include such other information as may be required by the Secretary of the Treasury.

The Section 6056 Proposed Regulations

The proposed section 6056 regulations require each applicable large employer to report certain health insurance coverage information to the IRS, and to furnish certain related employee statements to its full-time employees. For purposes of establishing an employer’s status as an applicable large employer, the Act treats as a single employer all entities under common control. But for purposes of imposing penalties under the employer shared responsibility rules, each “applicable large employer member” (i.e., each member of the controlled group) is treated separately. The proposed section 6056 regulations follow this approach. Thus, for Code section 6056 purposes, filing and notice requirements are applied separately to each applicable large employer member. The regulators recognize that applicable large employer members may seek the assistance of a third-party administrator or a related applicable large employer member with their compliance obligations. But each applicable large employer member is legally responsible for its reporting under Code section 6056.

The section 6056 proposed regulations include special rules that apply to an applicable large employer member that is a governmental unit, agency or instrumentality that permit the designation of a person or persons to be responsible for compliance. The person so designated assumes responsibility for section 6056 compliance on behalf of the applicable large employer member.

In what is referred to as the “general method,” each applicable large employer member must file a section 6056 return with respect to its full-time employees in a manner similar to the separate Form W-2 filed by an employer for each employee. Thus, under the general rule, a separate notice is required for each full-time employee, accompanied by a single transmittal form.

The proposed section 6056 regulations do not require the reporting of (1) the length of any waiting period, (2) the employer’s share of the total allowed costs of benefits provided under the plan, (3) the monthly premium for the lowest-cost option in each of the enrollment categories (such as self-only coverage or family coverage) under the plan, and (4) the reporting of the months, if any, during which any of the employee’s dependents were covered under the plan. Rather, the proposed regulations require reporting only regarding whether an employee was covered under a plan. Moreover, much of the information that is required will be reported using indicator codes. Thus, for example, there would be codes for whether minimum essential coverage meeting minimum value was provided to the employee only, the employee and the employee’s dependents only, the employee and the employee’s spouse only, or the employee, the employee’s spouse and dependents.

According to the proposed section 6056 regulations, the information that must be reported to the Service under Code 6056 includes the following:

1. The name, address, and EIN of the applicable large employer member;

2. The name and telephone number of the applicable large employer’s contact person;

3. The calendar year for which the information is reported;

4. A certification as to whether the applicable large employer member offered to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, by calendar month;

5. The months during the calendar year for which coverage under the plan was available;

6. Each full-time employee’s share of the lowest cost monthly premium (self-only) for coverage providing minimum value offered to that full-time employee under an eligible employer-sponsored plan, by calendar month;

7. The number of full-time employees for each month during the calendar year;

8. The name, address, and TIN of each full-time employee during the calendar year and the months, if any, during which the employee was covered under the plan; and

9. Such other information as the Secretary may prescribe or as may be required by a tax form or instructions.

Returns must be filed on or before February 28 (March 31 if filed electronically) of the year succeeding the calendar year to which it relates. Thus, similar to the rules governing 6055 reporting, the first return (for 2015) will be filed in early 2016. Electronic filing is generally required of section 6056 information returns except that an applicable large employer member filing fewer than 250 returns during the calendar year may file on paper. For purposes of applying the 250-return threshold, section 6056 returns and W-2 forms are aggregated. Thus, for example, an applicable large employer member required to file 150 section 6056 returns and 200 Forms W-2 must file electronically.

The statements required to be furnished to full-time employees must include the name, address and EIN of the applicable large employer member, and the information required to be shown on the section 6056 return described above. Statements will be on yet-to-be-issued Form 1095-C, or a substitute that includes the information required to be shown on Form 1095-C. A statement must be furnished to a full-time employee on or before January 31 of the year succeeding that calendar year.

An applicable large employer that fails to comply with the filing and statement furnishing requirements is subject to penalties for failure to file a correct information return and failure to furnish correct payee statements. Penalties can be waived, however, if the failure is due to “reasonable cause and not to willful neglect.”

The proposed 6056 regulations include a rule similar to that included in the proposed 6055 proposed regulation permitting the reporting entities to furnish information returns electronically in lieu of a paper format, but only if the recipient affirmatively consents. The consent may be made electronically “in any manner that reasonably demonstrates that the recipient can access the statement in the electronic format in which it will be furnished.” Alternatively, the consent may be made in a paper document that is confirmed electronically. The recipient must also be allowed to withdrawal his or her consent.

Proposals for Simplification of Section 6056 Reporting

The preamble to the proposed 6056 regulations set out a series of suggestions (which are not part of the proposed regulation itself) aimed at simplification, with respect to which comments are invited. These include:

1. Eliminating Section 6056 Employee Statements in Favor of Form W-2 Reporting for Certain Groups of Employees Offered Coverage

Code Section 6056 reporting requires the disclosure of coverage information by month. Employees in stable, full-time employment, however, are employed for and have the same coverage throughout the entire year. For these employees, might reporting be accomplished using a letter code on the employees’ Form W-2 to indicate that minimum value coverage was offered and to whom? Of course, for employees who do not fit this profile, the employer would revert to the general method described above.

2. No Need to Determine Full-Time Employees If Minimum Value Coverage Is Offered to All Potentially Full-Time Employees

Some employers offer coverage to all or nearly all of their employees, and are able to accurately represent that the only employees not offered coverage are not full-time employees. Might these employers provide section 6056 reporting that does not identify the number of full-time employees and that does not specify whether a particular employee offered coverage is a full-time employee? Instead, the employer would certify that all of its employees to whom it did not offer coverage during the calendar year were not full-time employees (or were otherwise ineligible for coverage).

3. Self-Insured Employers Offering Employees, Their Spouses and Dependents Mandatory No-Cost Minimum Value Coverage

Some (admittedly few) employers provide mandatory minimum value coverage under a self-funded group health plan to all employees, spouses, and dependents with no employee contribution. As a result, none of these individuals will qualify for a premium tax credit for any month during which the coverage was provided. In this case, the individual’s 6055 return would provide all the necessary information to accurately file the taxpayer’s income tax returns. Could 6056 reporting be limited in this case to a code on the Form W-2, the summary information provided in the section 6056 transmittal form, and nothing further?

4. Voluntarily Reporting Section 6056 Elements During or Prior to the Year of Coverage

The preamble to the proposed rule explains that:

Some employers have expressed an interest in voluntarily reporting information about the coverage they offer their employees prior to the end of a coverage year, for example at their open enrollment or before the open enrollment at the Exchanges, on the theory that earlier section 6056 reporting to the IRS could lead to greater efficiency in the employer verification system employed by Exchanges to determine eligibility for premium tax credits.

Noting that the relevant provisions of the Code do not permit advance filing as a method of compliance, the approach would have to be voluntary.

5. Reporting for Employees Potentially Ineligible for the Premium Tax Credit

In instances where many or most of an employer’s employees are relatively highly paid, thus unlikely to be eligible for a premium tax credit, there is no benefit to the employee from receiving a section 6056 employee statement. Nor would the information be of value to the IRS in administering the Act’s employer shared responsibility provisions. Could this reporting be dispensed with?

6. Combinations of Simplified Reporting Methods

The potential simplified reporting methods described above would apply to particular groups of employees that in many but not all cases would not overlap. Final rules will need to ensure that two different potential simplified reporting methods could not be applied to a single employee.