Affordable Care Act Review

Affordable Care Act Review

Budgeting for Employer Mandate Tax Assessments

Posted in Affordable Care Act, Exchanges, Government Employers, Private Employers, Taxes

For October 1 fiscal year employers, it’s budget season. Calendar year employers aren’t far behind. Those doubting their employer mandate compliance need to accrue reserves for non-deductible assessments that the IRS may impose in the coming year. We can help you determine your maximum exposure but we can’t tell you that you have exposure, regardless of your compliance status. Sounds crazy, right? Here’s why.

Your compliance, or not, with Code § 4980H does not alone determine your employer mandate tax assessment. At least one of your full-time employees must buy subsidized insurance through an ACA Exchange for at least one 2015 coverage month in order to trigger an employer mandate tax assessment in 2016.  The vast majority of those purchases have been made, but very few employers, in states with state-based Exchanges, have received any notice that their employees were among the purchasers.  The part of that sends those notices and resolves employer appeals still has not been built, by all published accounts.

CMS announced October 23, 2014 that paper notices would be used for 2015. Have you seen such a notice? Didn’t think so.

Of course, you could poll your full-time employees. But you shouldn’t. Knowing who had triggered potential employer mandate taxes could expose you to claims of retaliation, should you later need to discipline or fire them.

If you had received subsidy certification notices, you might have found that former employees were certified as current employees, that part-time employees were certified as full-time employees and that employees offered affordable coverage were certified as having been offered no coverage. You would have had the right to appeal those errors.  And maybe you will. We’re not holding our breath.

Increasingly, it’s looking like your first notice of employees’ 2015 subsidy certifications will be an IRS tax assessment notice in 2016. Subsidies Trigger Employer Mandate Tax Assessments.

Posted in Affordable Care Act, Business Organizations, Coverage Mandates, Employee Leasing, Exchanges, Independent Contractors, Taxes

This morning, the Supreme Court of the United States, by a 6-3 margin, removed the last legal obstacle to employer mandate tax enforcement. Because the HHS had authority under Code § 36B to subsidize insurance plans bought through (according to an IRS rule), those subsidies properly will trigger Code § 4980H employer mandate tax assessments by the IRS starting in early 2016.   If you are accruing liabilities, you need to determine how you’ll pay those assessments and how you might minimize them. You’ll probably need outside help to do both.

We predicted this opinion but we’re not celebrating. We’re especially concerned for state agencies, local governments, smaller large employers and employers that rely on employees leased in full-time status for less than one year. Here’s a simplified comparison of potential § 4980H(a) assessments based on the same payroll numbers for 2014 (ALE in 2015, assessed in 2016) and 2015 (ALE in 2016, assessed in 2017).

200 Full-time W-2 Employees, all offered coverage (90.1%)

20 Full-time Leased Employees, none offered coverage (9.9%)

2016 § 4980H(a) assessment:         $0                     (70% offer transitional relief)

2017 § 4980H(a) assessment:         $360,000+     (95% offer required)

Should this employer fail to file and deliver its required 2015 Forms 1094-C and 1095-C in early 2016, a $44,000 penalty could be assessed for that default, even though no employer mandate tax was owed for 2015.

Many more traps have been laid and few are sufficiently wary.  As Justice Roberts understated it in his majority opinion, “[The ACA] does not reflect the type of care and deliberation that one might expect of such significant legislation.”  Boy, howdy.  Get help.

Update (in response to inquiries):  Some had speculated that the Court might delay the effective date of its decision if it invalidated subsidies.  This decision in favor of the subsidies, and therefore in favor of the employer mandate, is effective retroactively.  The mandate was effective for most “Applicable Large Employers” (on a controlled group basis) beginning January 1, 2015.

Update: We’re getting questions and comments that reflect fundamental misconceptions about the employer mandate. We’ll correct two here and save others for a separate article.

State and local government employers are covered, and most will be “large” due to aggregation rules. The IRS “controlled group” and “affiliated service group” rules don’t fit government employers exactly, but similar aggregation principles will apply.

It’s too late to “get small” for 2015. You are “large” or not in 2015 based on your 2014 employment levels (assuming that you existed in 2014). Your exposure to 2016 § 4980H assessments is based on your “Applicable Large Employer” status in 2015 (which is based, in turn, on your 2014 employment) but your “assessable payment amounts” will be based on 2015 employment levels.

Few Surprises in Final SBC Regs

Posted in Affordable Care Act

Last week the Departments of Labor, Health and Human Services and Treasury (“Departments”) issued final regulations that included additional rules relating to the summary of benefits and coverage (SBC). The June 2015 regulations (“Final Regulations”) finalize the proposed rules which were issued in December 2014.

The Final Regulations provide promises of an updated SBC template and related materials prior to January 2016. The revised template will apply to coverage that would renew or begin on the first day of the plan year beginning on or after January 1, 2017, including open enrollment periods occurring in the Fall of 2016. The 2015 regulations also indicate that the Departments will address issues and concerns regarding the revised template at some point in the future. Until the updated SBC template and related documents are finalized and applicable, plans and insurers will be able to continue to rely on the April 2013 temporary enforcement safe harbor which basically stated that the Departments would not take enforcement action against a plan or insurer that was unable to update its SBCs to address minimum essential coverage (“MEC”) and minimum value (“MV”), if the SBCs had a cover letter or other disclosure containing required MEC and MV statements.

The Final Regulations adopt the clarifications found in the proposed regulations regarding when and how health insurers must provide SBCs to plans (or plan sponsors) upon the plan’s application for coverage.

The Final Regulations also explain what happens if a plan sponsor is still negotiating coverage terms after an application for coverage has been filed and the required SBC information changes. The Final Regulations provide that the plan or insurer need not provide an updated SBC (unless an updated SBC is requested) until the first day of coverage at which point the SBC must reflect the final coverage terms.

Also, the Final Regulations incorporate the safe harbor previously adopted in FAQ guidance with regard to electronic delivery of SBCs. Under the safe harbor, SBCs may be provided electronically as part of an individuals’ online enrollment or online renewal of coverage. However, these participants or beneficiaries must have the option to receive a paper copy upon request.

The Final Regulations also addressed the enforcement/penalties associated with SBC failures. A group health plan or insurer that willfully fails to provide information required under the SBC rules is subject to penalties. The Final Regulations provide that the DOL will use the same process and procedures for assessing civil fines for a failure to provide SBCs as they currently use for a failure to file Form 5500s. In addition, the Final Regulations state that the IRS will enforce the SBC rules using procedures consistent with Internal Revenue Code 4980D.

Generally the Final Regulations contain few changes from the 2014 proposed regulations. However, we have not yet seen the end of the changes as it is possible, if not likely, that the updated SBC template and related materials issued later this year may contain more extensive changes to address concerns regarding SBC compliance.


Coverage Offer Reporting: What’s Simple . . . and What’s Not

Posted in Affordable Care Act, Employee Leasing, Government Employers, Private Employers, Taxes

As we gather to gawk at the impending King v. Burwell piñata whacking, here’s a reminder to curb your enthusiasm. Even if your employer mandate dies this month, even if it is not resurrected by legislation or executive action, and even if you provide compliant coverage, most of you will have to report your 2015 coverage offers in early 2016 or face audit and significant penalties. He’s a short summary of the reporting requirements, arranged by simplicity.

Who’s Exempt?

Small employers with no group health plans and small employers with fully-insured group health plans are exempt from the coverage offer reporting requirements, because they apply to insurers (including self-insuring employers, under Code § 6055) and to “Applicable Large Employers” (Code § 6056, borrowing the § 4980H ALE definition).

As with the employer mandate, exemption of government employers is a well-busted myth.

Are you eligible for the 50 to 100 “bubble employer,” transitional relief from the 2015 employer mandate? Great, but that only adds to your coverage offer reporting, requiring your certification of eligibility on Form 1094-C.  Relief is not automatic.  You must report and request it.

Fully-Insured ALEs Use Forms 1094-C and 1095-C.

Do you have an EIN? Good, you’ll need one to file with the IRS a Form 1095-C for each person who was your full-time employee in any month of 2015, along with a Form 1094-C cover sheet for the whole set of Forms 1095-C. Your insurer will file Forms 1094-B and 1095-B. To the extent of overlap, they should agree. Expect the IRS to check your submissions against each other and against your W-2 filings.

Self-Insured Small Employers Use Forms 1094-B and 1095-B.

You’re not subject to 2015 plan year ALE reporting if you are small (based on 2014 employment) and not a member of an aggregated ALE group. But if you’re self-insured, you’re subject to insurer reporting.

Self-Insured Large Employers

Here’s where complexity starts. Code sections 6055 and 6056 apply fully to you. The § 6055 rules, § 6056 rules and instructions for the “C” Forms and for the ‘B” Forms offer less than complete relief from duplicative demands. Get help.


Yes, subject to current guidance and with retention of ultimate liability, an employer may report through an agent. A Governmental Unit may trust its reporting to a Designated Governmental Unit (“DGE”). But the IRS must receive a single “authoritative transmittal” for each ALE member, regardless of who files it. That Form must identify all other ALE members of the same aggregated group. If you expect another to carry your load, verify now that they are prepared to carry your load without dropping it.

Leased Employees and Multi-Employer Plans

Do you rely on employees leased in full-time status for less than one year? They may be your ACA responsibility for employer mandate and for coverage offer reporting purposes. Do you contribute to a multi-employer plan administered by someone else? In either case, get help.

Get Help.

Few employers who prepare in advance should need extreme lawyering. Most, however, will need months of help from plan administration consultants, the best of whom are in high demand right now, because they have bought, rented or developed IT tools to handle full-time employee tracking and coverage offer reporting. If you show up late and need to cut in line, expect to pay for that privilege.

Recent Decision on Retiree Only Plans

Posted in Affordable Care Act

When the Affordable Care Act (“ACA”) was enacted, it raised a question about the treatment of stand-alone retiree health plans under some provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Public Health Services Act, as amended (the “PHSA”), and the Internal Revenue Code of 1986, as amended (the “Code”).  By way of background, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) included provisions to ensure at least a minimum level of health care coverage. These provisions included, among other things, limitations on pre-existing conditions, prohibition of discrimination based on health status, special enrollment rights, minimum standards related to hospital stays following childbirth, etc. In addition, amendments to these provisions include incorporating the Genetic Information Nondiscrimination Act (“GINA”), coverage of dependent students on a medically necessary leave of absence (commonly called Michelle’s Law), and expanded mental health parity requirements. These “coverage mandates” were enacted through parallel provisions in ERISA, the PHSA, and the Code.

The coverage mandates, as set forth in ERISA, the PHSA, and the Code, included an exception for “group health plan[s] that on the first day of any plan year has less than 2 participants who are current employees.” This is typically referred to as the “retiree only” exception. Any plan that meets this exception would not be subject to the most of the coverage mandates.

When the ACA was enacted, it deleted the retiree only exception from the PHSA, effective as of the date of enactment. Because it was deleted from the PHSA, many thought that the retiree only exception was also eliminated from ERISA and the Code, and that stand-alone retiree plans would now be subject to the coverage mandates and force many of these retiree only plans to make significant changes. However, in the Preamble, the Agencies take the position that, although the ACA amendments to the coverage mandates under the PHSA are incorporated into the parallel provisions of ERISA and the Code, current coverage mandates in ERISA and the Code are not affected “unless they cannot be read consistently with an incorporated provision” of the PHSA. The Agencies provided that in their view the pre-existing retiree only exceptions found in ERISA and the Code do not conflict with the deletion of the retiree only exception in the PHSA. Thus, the retiree only exception remains in place under ERISA and the Code. It should be noted that the retiree only exception is not addressed in the actual regulations.

Since the enactment of the ACA, many have worried that this could give rise to participant lawsuits claiming that they are entitled to certain ACA mandated benefits. And while individuals may not enforce the provisions of the Code, they can enforce ERISA and the PHSA. Basically, the concern was that despite the Agencies’ position in the Preamble, an individual plan participant in an employer-sponsored plan who is denied benefits that are included in the requirements under ACA would be permitted to bring a lawsuit to enforce those requirements with respect to the plan.

This came to fruition in King v. Blue Cross and Blue Shield of Illinois. In this case, a participant challenged the plan’s imposition of lifetime dollar limits on benefits (ACA does not allow such limitations). The plan argued that it was not subject to the mandates of ERISA section 712 which exempts retiree only plans (as discussed above). The court found in favor of the plan and stated that even though the PHSA no longer included an express exemption for retiree only plans that did not mean that Congress intended to eliminate the exception. The court also noted that the Agencies, while in a nonbinding Preamble, stated that the exemption remains in effect and applies to certain ACA mandates. While this court was persuaded by the Agencies’ position taken in the Preamble, other courts may not be.

2015 Exchange Paid Enrollment Data

Posted in Affordable Care Act, Exchanges

On June 1, HHS published a “March 31, 2015 Effectuated Enrollment Snapshot,” comparing ACA Exchange enrollment data with premium payment reports. About 10.2 million of the 11.7 million who enrolled (87%) had made a premium payment, compared with just 6.3 million who were paid-up as of December 31, 2014. That’s a 62% increase.

As of March 31, 87% of those with paid coverage were receiving premium subsidies, averaging $272 per month – denoted “APTC” in the table below. But 69% of those with paid coverage were covered through federal Exchanges – either or state-branded versions of it. Assuming the same subsidy rate for all Exchanges, this means that subsidies for about 5.66 million federal Exchange insureds are at stake in King v. Burwell.

Here are the numbers for southeast U.S. states, all of which are served by a federal Exchange.  Six of the ten most-subsidized states are in this list. The other four are North Carolina (93.2%), Wyoming (92.9%), Wisconsin (90.7%) and Alaska (90.5%). Just one of the top ten subsidy states (Arkansas) has expanded Medicaid under the ACA.

State Total Enrollment APTC Enrollment Percentage of Enrollment with APTC Average APTC
National Total 10,187,197 8,656,210 85.0% $277
AL 145,763 132,253 90.7% $270
AR 52,784 48,100 91.1% $284
FL 1,415,981 1,324,516 93.5% $294
GA 452,815 412,385 91.1% $274
LA 149,954 137,940 92.0% $323
MS 80,011 75,613 94.5% $351
SC 170,948 154,221 90.2% $281
TN 182,893 155,753 85.2% $218
TX 966,412 832,334 86.1% $247
VA 335,033 285,938 85.3% $258

King v. Burwell Forecast: Cloudy with a Chance of Panic

Posted in Affordable Care Act, Coverage Mandates, Employee Leasing, Exchanges, Government Employers, Insurers and Brokers, Private Employers, Providers - For Profit, Providers - Not-for-Profit, Taxes

This is a compliance blog; we don’t do politics. But we can’t explain compliance consequences of the Supreme Court’s King v. Burwell opinion without acknowledging the political context.

Here’s the June calendar of the Supreme Court of the United States.









Opinions are posted online on Monday or Tuesday, typically. As early as tomorrow, or as late as June 30, we will read whether the IRS and HHS had authority to grant subsidies to people who bought health insurance through   We expect the government to prevail, 5-4. If we’re right, nothing changes, legally, but much changes practically. That’s because so many employers have tried to wait-out the ACA, hoping for political or judicial relief from its burdens. With a few exceptions (e.g., the Cadillac Plan tax), this appeal is their last hope. If they guessed wrong, there will be a mad scramble for hurried advice and assistance, some of which will be reliable.

If the government loses, there will be no employer mandate for employers with employees only in states served by That’s because subsidy certification triggers the employer mandate taxes assessed under 26 U.S.C. § 4980H. No subsidy, no tax. Of course, Congress could change the law but prospects for agreement seem dim. Senate Democrats are likely to filibuster any change except deletion from Code § 36B(b)(2) of the phrase, “established by the State under 1311 of the Patient Protection and Affordable Care Act.” Republicans have not yet revealed an alternative that is likely to have overwhelming popular support. Stalemate seems to be the most likely outcome.

Stalled legislation could tempt the White House to try another “executive action” detour around Congress, but the hostile judicial reception to the President’s executive action on immigration might cool that ardor. And, with a Presidential election looming, Democrats might prefer to blame Republicans for millions of people losing their subsidized health insurance.

We’ll share our more particular thoughts within hours of reading the Supreme Court opinion.

Update:  People rooting for the plaintiffs here should be encouraged by Justice Roberts’ joinder of this part of the opinion in Baker Botts L.L.P. v. ASARCO LLC, 576 U.S. ___ (June 15, 2015):

More importantly, we would lack the authority to re­write the statute even if we believed that uncompensated fee litigation would fall particularly hard on the bank­ruptcy bar. “Our unwillingness to soften the import of Con­gress’ chosen words even if we believe the words lead to a harsh outcome is longstanding,” and that is no less true in bankruptcy than it is elsewhere. Lamie v. United States Trustee, 540 U. S. 526, 538 (2004). Whether or not the Government’s theory is desirable as a matter of policy, Congress has not granted us “roving authority . . . to allow counsel fees . . . whenever [we] might deem them warranted.” Alyeska Pipeline, supra, at 260. Our job is to follow the text even if doing so will supposedly “undercut a basic objective of the statute,” post, at 3. Section 330(a)(1) itself does not authorize the award of fees for defending a fee application, and that is the end of the matter.

Update:  “The Supreme Court has added non-argument sessions for the announcement of opinions on Thursday, June 25, 2015, and Friday, June 26, 2015, at 10 a.m.”  See




EEOC Wellness Incentive Rules: Damned If You Do, Maybe

Posted in Affordable Care Act, Government Employers, Insurers and Brokers, Private Employers

Almost two years ago, the ACA enforcement agencies jointly published a set of lengthy, detailed, final rules applying the ACA’s enhanced health status discrimination prohibition to employer-administered wellness incentives. On April 16, 2015, the EEOC declared those rules insufficient to satisfy the Americans with Disabilities Act, proposing enhanced ADA rules to be codified at 29 CFR § 1630.14. Though much of the lingo is the same, the EEOC rules expose employers to ADA liability for administering wellness incentives that comply with the final ACA rules. We’ll hit just a few highlights here.

The regulatory amendments fill just three of the publication’s forty-four pages, bookended by a thirty-page preamble and a ten-page guidance appendix.  It’s always important to study the preamble before reading the rules and we have, but our space and your time is limited, and much of the preamble reappears in the appendix, so we’ll quote the new rule text, then cut to the guidance.

1630.14 Medical examinations and inquiries specifically permitted.

* * * * *

(d) * * *

(1) Employee health program. An employee health program, including any disability-related inquiries or medical examinations that are part of such program, must be reasonably designed to promote health or prevent disease. A program satisfies this standard if it has a reasonable chance of improving the health of, or preventing disease in, participating employees, and it is not overly burdensome, is not a subterfuge for violating the ADA or other laws prohibiting employment discrimination, and is not highly suspect in the method chosen to promote health or prevent disease.

(2) Voluntary. An employee health program that includes disability-related inquiries or medical examinations (including disability-related inquiries or medical examinations that are part of a health risk assessment) is voluntary as long as a covered entity:

(i) Does not require employees to participate;

(ii) Does not deny coverage under any of its group health plans or particular benefits packages within a group health plan for non-participation, or limit the extent of benefits (except as allowed under paragraph (d)(3) of this section) for employees who do not participate;

(iii) Does not take any adverse employment action or retaliate against, interfere with, coerce, intimidate, or threaten employees within the meaning of Section 503 of the ADA, at 42 U.S.C. 12203; and

(iv) Where a health program is a wellness program that is part of a group health plan, provides employees with a notice that:

(A) Is written so that the employee from whom medical information is being obtained is reasonably likely to understand it;

(B) Describes the type of medical information that will be obtained and the specific purposes for which the medical information will be used; and

(C) Describes the restrictions on the disclosure of the employee’s medical information, the employer representatives or other parties with whom the information will be shared, and the methods that the covered entity will use to ensure that medical information is not improperly disclosed (including whether it complies with the measures set forth in the HIPAA regulations codified at 45 CFR parts 160 and 164).

(3) Incentives offered for employee wellness programs that are part of a group health plan. The use of incentives (financial or in-kind) in an employee wellness program, whether in the form of a reward or penalty, together with the reward for any other wellness program that is offered as part of a group health plan (as defined in 29 USC 1191b(a)), will not render the program involuntary if the maximum allowable incentive available under the program (whether the program is a participatory program or a health-contingent program, or some combination of the two, as those terms are defined in regulations at 26 CFR 54.9802-1(f)(1)(ii) and (iii), 29 CFR 2590.702(f)(1)(ii) and (iii), and 45 CFR 146.121(f)(1)(ii) and (iii), respectively) does not exceed 30 percent of the total cost of employee-only coverage.

* *

Guidance begins by warning that calling something an “employee health program” won’t make it so. For example –

Conducting a HRA and/or a biometric screening of employees for the purpose of alerting them to health risks of which they may have been unaware would meet this standard, as would the use of aggregate information from employee HRAs by an employer to design and offer health programs aimed at specific conditions that are prevalent in the workplace. An employer might conclude from aggregate information, for example, that a significant number of its employees have diabetes or high blood pressure and might design specific programs that would enable employees to treat or manage these conditions. On the other hand, collecting medical information on a health questionnaire without providing employees follow-up information or advice, such as providing feedback about risk factors or using aggregate information to design programs or treat any specific conditions, would not be reasonably designed to promote health. Additionally, a program is not reasonably designed to promote health or prevent disease if it imposes, as a condition to obtaining a reward, an overly burdensome amount of time for participation, requires unreasonably intrusive procedures, or places significant costs related to medical examinations on employees. A program also is not reasonably designed if it exists mainly to shift costs from the covered entity to targeted employees based on their health.

EEOC then does the math on the 30% limitation. If the all-in, annual premium for employee-only coverage is $5,000, then the 30% limit is $1,500. So, offering $250 for completing a health assessment and $1,500 for satisfying a health-contingent standard would be unlawful, even though each type of incentive complied with the rules for that type of incentive.

Smoking cessation incentives get more deference, as under the ACA rules. Excluding them from the “disability-related inquiries or medical examinations” targeted by the ADA, the EEOC frees employers to “offer incentives as high as 50 percent of the cost of employee coverage for that smoking cessation program, pursuant to the regulations implementing HIPAA, as amended by the Affordable Care Act, without implicating the disability-related inquiries or medical examinations provision of the ADA.”

The guidance also warns that ADA accommodation obligations may exceed employer ACA obligations to offer alternatives to employees who cannot satisfy health-contingent award standards and may require, “a reasonable accommodation for a participatory program even though HIPAA and the Affordable Care Act do not require such programs to offer a reasonable alternative standard.”

The guidance also cautions against making, “individuals who handle medical information that is part of an employee health program . . . responsible for making decisions related to employment, such as hiring, termination, or discipline.” EEOC recommends using a third party to reduce, “the risk that medical information will be disclosed to individuals who make employment decisions, particularly for employers whose organizational structure makes it difficult to provide adequate safeguards.” Alternatively, “Employers that administer their own wellness programs need adequate firewalls in place to prevent unintended disclosure.”


12 ACA Compliance Boxes You Should Have Checked Already

Posted in Uncategorized

For employers who have delayed ACA compliance this long, you have delayed too long. Even if things go your way this June in King v. Burwell, you’ll be unprepared for EBSA compliance audits and for IRS coverage offer reporting that is independent of that case. And there’s more than you think riding on the bet that things will go your way. There are 12 ACA compliance boxes that large employers should have checked already

The ACA Review’s R. Pepper Crutcher, Jr. authored an article published in Bloomberg BNA’s Health Insurance Report on April 8, 2015. The article detailed actionable items for employers to ensure are completed leading up to the full enforcement of the Affordable Care Act. Mr. Crutcher provided insight on measurement periods, status tracking and coverage offer reporting among other compliance requirements.

To read the Bloomberg BNA article, click here.

Is Every State Agency and Instrumentality An Applicable Large Employer Member?

Posted in Affordable Care Act, Government Employers, Taxes

Your board, commission or other state-created entity has ten employees and a budget that’s a Medicaid rounding error to four decimal places.   How could you possibly be an ACA “Applicable Large Employer”? Here’s how, and here’s what it means.

Writing its employer mandate rules under 26 U.S.C. § 4980H and its coverage offer reporting rules under 26 U.S.C. § 6056 last year, the IRS borrowed prior rules that treat small, nominally independent corporations as a single employer, based on common ownership and financial control. Though government employers also are covered by sections 4980H and 6056, the IRS had no such government employer aggregation rules to borrow. Here’s part of what the IRS said, consequently, about the applicable aggregation standard for government employers in each set of rules.

The final regulations continue to reserve on the application of the employer aggregation rules under section 414(b), (c), (m) and (o) to government entities, as well as to churches or conventions or associations of churches (as defined in § 1.170A–9(b)). Until further guidance is issued, those entities may apply a reasonable, good faith interpretation of section 414(b), (c), (m) and (o) in determining their status as an applicable large employer.

79 Fed. Reg. 8,548 (preamble to the employer mandate rules). For this purpose, a “government entity” is, “any state or political subdivision thereof . . . or any instrumentality of any of the foregoing.” 26 CFR § 54.4980H-1(a)(23). “Instrumentality” is not defined in the rules. Code § 414(b) and § 414(c) reference the controlled group rules for corporations and partnerships. Code § 414(m) states “affiliated service group” rules for corporate aggregation. Code § 414(o) directs the IRS to issue related rules.

The coverage offer reporting rules incorporate the “Applicable Large Employer” definition of the employer mandate rules and, similarly, define, “agency or instrumentality of a government unit” as, “[Reserved.]” 26 CFR § 301.6-56-1. Footnote 3 in the preamble explains that –

Until further guidance is issued, government entities, churches, and a convention or association of churches may apply a reasonable, good faith interpretation of section 414(b), (c), (m), and (o) in determining whether a person or group of persons is an applicable large employer and whether a particular entity is an applicable large employer member. See section V.D. of the preamble to the final section 4980H regulations (TD 9655).

79 Fed. Reg. 13,234.

Now, back to your predicament. A ten-employee office wholly owned and controlled by an Applicable Large Employer corporation is a ”member” of that employer, with the same employer mandate and coverage offer reporting responsibilities. Among other things, it should know by now who within the organization will generate, file with IRS and deliver a Form 1095-C to each full-time employee in early 2016, detailing that employee’s coverage offer status for each 2015 coverage month. A small state or county agency or instrumentality has the same obligation, except that the IRS has promised to forgive your “reasonable, good faith” misunderstanding of how the IRS would apply corporate aggregation rules to your government entity. But you must actually have made the effort to understand and apply those rules.  If so, you should be able to prove that effort, by contemporaneous documents. An exculpatory interpretation crafted next year in response to an IRS assessment may not do the trick. Here’s what you need to know, soon:

  • Are we an agency or instrumentality of the state? The county?
  • If so, is our office independently responsible for 2015 coverage offer reporting?
  • If not, who in the large organization is doing this for us?
  • If we are a state or county agency or instrumentality, and if we are found to be non-compliant, from what accounts are IRS employer mandate taxes and reporting penalties to be paid in 2016?