During the week reviewed, no new bill was introduced which, if passed, would repeal or replace the Affordable Care Act, and little else happened at the three main ACA enforcement agencies – DOL, HHS and IRS.

Department of Labor

The Department of Labor still has no Secretary and the nominee, Andrew Puzder, has not yet been given a hearing.  A DOL.gov site redesign was apparent, but it says nothing regarding the agency’s implementation, or not, of Executive Order 13765, which commands ACA enforcement agencies to –

exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications,

“to the maximum extent permitted by law.”

Health and Human Services

Former Congressman Tom Price (R-GA) was confirmed as the new HHS Secretary February 9, 2017.  On that date, most HHS web pages related to the ACA remained substantially as they were the day before President Trump’s inauguration. There was no mention of E.O. 13765.  Nevertheless, the Price confirmation may be the most significant development of the week.  If majority leaders in the House and Senate cannot produce soon a repeal/replace bill supported by a majority of each majority, the new HHS Secretary figures to become the project manager by default.

Internal Revenue Service

The Internal Revenue Bulletins for February 6 and February 13 include no reference to the employer mandate tax assessment procedures forecast to be rolled-out in “early 2017.”  We doubt that this prolonged silence was provoked by the regulatory freeze executive order, since a February 2 White House Memorandum seems to confine that freeze to “significant” regulations, and the employer mandate regulations were not deemed “significant” by the IRS.  See 79 Fed. Reg. 8,577 (Feb. 12, 2014, left column).  And no, the IRS website doesn’t mention E. O. 13765 either.

We doubt that Gershwin tune, “I Got Plenty O’ Nottin’,” was intended as political prophecy.  It just turned out that way.

Since late December, 2016, many Applicable Large Employer Members have received IRS Letter 5699 from a Tax Compliance Officer at an address in Florence, Kentucky.  The “Dear Taxpayer” letter is headed: “Request for Employer Reporting of Offers of Health Insurance Coverage (Forms 1094-C and 1095-C).”  We have assumed the authenticity of these letters.

Each letter tells the recipient that no 2015 Form 1094-C or Form 1095-C was received from the taxpayer ID number appearing atop the letter and instructs the taxpayer to check one of these boxes and return the letter by mail.

[ ] I was an ALE for calendar year 2015 and already filed Form 1094-C and Forms 1095-C with the IRS using the following name __________ and employer identification number (EIN) _______ on date ____.

[ ] I was an ALE for calendar year 2015 and my Form 1094-C and Forms 1095-C are included with this letter. (Do not use this box if you are required to file electronically.)

[ ] I was an ALE for calendar year 2015 and will file my Form 1094-C and Forms 1095-C with the IRS using the following name __________ and EIN ______ by date ___.  (If more than 90 days from the date of this letter, explain below under “Other.”)

[ ] I was not an ALE for calendar year 2015.

[ ] Other (Indicate below or attach a statement explaining why you have not filed the required returns and any actions you plan to take.)

[ … ]

If you are required to file information returns under IRC Section 6056, failure to comply may result in the assessment of a penalty under IRC Section 6721 for a failure to file information returns.

If you have questions, please contact the person shown at the top of this letter.

Remember, there are two penalties for each missing Form 1095-C – $250 for failing to deliver it to the employee and another $250 for failing to file it with the IRS.  Lesser penalties apply to late filing and certain filing errors.  As they say in the Exempt Organizations group, “BOLO” – i.e., Be On the Look-Out.

Nothing resembling a repeal/replace consensus bill emerged from any committee in either chamber during the survey period.  Instead, in a Fox News interview broadcast just before the Super Bowl, the President confessed that ACA repeal may require more than a year.  A concise summary by Peter Sullivan in The Hill is online here.

Consistent with that impression, ACA bills introduced last week just nibble around the edges.

H.R. 710 assumes that the ACA is not repealed and so amends it to better align ACA non-payment grace periods with those established in state laws.

H.R. 708 would relax the present ACA age banding rules and H.R. 706 would tighten special enrollment eligibility verification requirements.

Like H.R. 849,  S. 260 (Sen. Cornyn, R-TX) and S. 251 (Sen. Wyden, D–OR) would repeal only the ACA’s Independent Payment Advisory Board.  The same Senators filed similar Independent Medicare Advisory Board disapproval resolutions – S.J. Res. 17 (Cornyn) and S.J. Res. 16 (Wyden).

The video of the February 1, 2017 ACA hearing held by the Senate H.E.L.P. Committee is online here.  On February 2, the House Ways and Means Committee posted some early information about its “concept of a health care backpack” in lieu of the present ACA structure.

The IRS has posted two editions of the Internal Revenue Bulletin since our last update, neither detailing ACA tax and penalty assessment procedures.

The ACA was not repealed or replaced on Day 1; neither is likely to happen by Day 100.  What Winston Churchill said.

As previously reported, § 2001 of the 2017 budget bill required all ACA repeal/replace bills to be filed and reported from assigned committees by Friday, January 27, 2017.  That didn’t happen.  Since our last posting, the bills listed below have been filed and assigned to committees, but no ACA bill has emerged from committee in either chamber.

H.R. 661 and H.R. 633 would grandfather as “minimum essential coverage” small group market health insurance plans that filed to meet the MEC criteria established by HHS under the ACA.

H.R. 640 would require states with failed ACA Exchanges to return unused federal funds.

H.R. 628 would preserve from ACA repeal the prohibition of pre-existing condition exclusions.

S.222 is Senator Rand Paul’s repeal and replace bill.

S. 194 (Sen. Whitehouse, D-RI) and H.R. 635 (Rep. Schankowsky, D-IL) revive debate over the “public option” that Congressional Democrats rejected when they passed the ACA in 2010.

S. 191 would permit states to opt-out of certain ACA health insurance market reforms and to substitute their own plans and programs.

On January 26, the House Budget Committee held a hearing titled, “The Failures of Obamacare: Harmful Effects and Broken Promises.”  The House Committee on Education and the Workforce scheduled a February 1 hearing titled, “”Rescuing Americans from the Failed Health Care Law and Advancing Patient-Centered Solutions.”

The Senate Budget Committee also set a February 1 hearing on CBO’s Budget and Economic Outlook, to be held at the same time as the Senate H.E.L.P Committee hearing titled, “Obamacare Emergency: Stabilizing the Individual Health Insurance Market.”

A Congressional Budget Office report (p.35) forecasts that repeal of the ACA medical device tax, health insurance provider fee and Cadillac plan tax would boost the deficit by $311 billion over ten years.  A separate CBO report, requested by Senate Democrats, estimates the insurance market consequences of repealing certain ACA taxes, fees and subsidies without repealing other ACA insurance market reforms.

Meanwhile, back at the IRS, a few new details were added January 18 to the FAQ guidance page for Applicable Large Employers.  Here’s what caught our eyes, reading from Q55 to Q 58.

From Q55:

The IRS will contact ALEs that filed Forms 1094-C and 1095-C by letter to inform them of their potential liability, if any. These letters will provide ALEs an opportunity to respond to the IRS before any liability is assessed or notice and demand for payment is made.  (These letters are separate from the letters that the IRS may send to employers that appear to be ALEs but have not satisfied the requirement to file Forms 1094-C and 1095-C.).

From Q56 (emphasis ours):

The IRS expects that the letters informing ALEs that filed Forms 1094-C and 1095-C of their potential liability for an employer shared responsibility payment for the 2015 calendar year (with reporting in 2016) will be issued beginning in early 2017.

For future years, the IRS expects it will begin issuing letters informing ALEs that filed Forms 1094-C and 1095-C of their potential liability for an employer shared responsibility payment, if any, in the latter part of each calendar year in which reporting was due (for example, in late 2018 for reporting in 2018 for coverage in 2017).

From Q 57 (emphasis ours):

The IRS expects to publish guidance of general applicability describing the employer shared responsibility payment procedures in the Internal Revenue Bulletin before sending any letters to ALEs for the 2015 calendar year.  In addition, the IRS expects to supplement that guidance in several different ways, widely distributing the information to ensure that ALEs are properly informed of when and how the IRS will be contacting them.

So, we’re watching the IRB daily.  However, that guidance was posted before the President issued Executive Order 13765 (January 20, 2017), directing each ACA enforcement agency to –

exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.

We have found no IRS or Treasury Department statement of how the Order may change the January 18 FAQ guidance, but the guidance has not been removed from the IRS web page.

Shortly after his January 20 inauguration, President Trump signed an Executive Order (promptly published by Politico) titled, “Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Appeal.”  It’s most notable for what it doesn’t do – i.e., compel any agency to take, or to refrain from taking, any particular ACA enforcement action.  It tells enforcement agencies to exercise their lawful discretion –

to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.

And, “[t]o the extent that carrying out the directives in this order would require revision of regulations issued through notice-and-comment rulemaking, the heads of agencies shall comply with the Administrative Procedure Act ….”  For ACA opponents, the problem is that the conditions counteract the commands.

So, for example, changing the employer mandate tax assessment and collection rules would require a new rulemaking process.  But the Obama Administration waived, delayed, relaxed and emphasized, or not, various parts of the employer mandate and employer reporting rules through what it called “sub-regulatory guidance,” consisting of, among other things, IRS Notices and periodically updated Frequently Asked Questions (FAQ) web page postings.

Perhaps President Trump hopes by this Order to induce current DOL, IRS and HHS staff to delay and relax already overdue ACA enforcement efforts.  But this Order does not command any waiver, delay, relaxation or other, particular, sub-regulatory guidance, which means, practically speaking, that the new President is asking the former President’s appointees to cooperate to undo years of their work.  We expect few volunteers.

If that’s a good guess, then the new Administration will need legislation, or personnel change, or both, to effect significant policy change.

Update:  The official version of Executive Order 13765 is here.

On January 13, the House passed the 2017 budget resolution (S. Con. Res. 3), which should be found on President Trump’s desk Monday morning.  As previously explained, this sets the stage for a filibuster-proof, budget reconciliation bill that can repeal and replace spending and tax provisions of the ACA.

S. 106,  introduced January 12 by Senator Cruz, would repeal the ACA entirely, but appears to include provisions susceptible to Senate filibuster.

While we await a consensus reconciliation bill, ACA-nibbling measures continue to be filed, including these:

H.R. 563 would eliminate the ACA individual mandate;

H.R. 562 would zero the individual mandate tax;

H.R. 561 would re-define “Applicable Large Employer”;

H.R. 551 would upgrade the ACA status of catastrophic coverage insurance;

H.R. 537 and H.R. 521 would exempt from the individual mandate those living in counties with less than 2 Exchange insurers;

S. 147  would forbid what it calls “a taxpayer bailout of health insurance issuers;”

S. 108  would repeal the medical device tax.

We expect to hear next week about President Trump’s initial ACA “executive actions.”  We doubt that we will see a consensus reconciliation bill in either chamber before Groundhog Day.

On January 5, the House passed the “Regulations from the Executive in Need of Scrutiny Act of 2017” (H.R. 26), streamlining the process for Congressional review and rejection of administrative agency rules, including a 10-year sunset provision for rules that Congress has not expressly approved.

In a late night “vote-a-rama” held January 11-12, the Senate approved the FY2017 budget (S. Con. Res. 3), which, absent Presidential veto, will enable Congress to pass budget reconciliation legislation immune to Senate filibuster.  Section 2001 directs assigned committees to report proposed ACA reconciliation bills to the Budget Committee by January 27, and requires the Budget Committee then to send to the full Senate “a reconciliation bill carrying out all such recommendations without any substantial revision.”

However, the big story was open dissent from any Senate plan to repeal the ACA without at least a consensus substitute bill, expressed most materially by Senator Lamar Alexander (Tennessee), chairman of the HELP Committee- i.e., Health, Education, Labor and Pensions.  Others sounding similar notes included Senators Cassidy (Louisiana), Collins (Maine), Corker (Tennessee), Murkowski (Alaska), Paul (Kentucky) and Portman (Ohio).  The loss of those votes for quick repeal, even by budget reconciliation, would require the majority to recruit seven or more minority party Senators.  That seems unlikely.  Nevertheless, a wide range of repeal bills continue to be filed.  Here’s a representative, but not exhaustive, list.

H.R. 394, introduced January 10 and referred to Ways and Means, would repeal the ACA provision that revised the Internal Revenue Code to prohibit HSA expenses for over-the-counter medications.  See also S. 85, introduced January 11 and referred to the Finance Committee.

H.R. 370, a full repeal bill, was introduced January 9 and referred to nine committees.

H.R. 314, a partial repeal bill, was introduced January 5 and referred to three committees.

H.J. Res. 21, amending the Constitution to forbid Congress to tax the failure to purchase a good or service, was introduced January 6 and referred to the House Judiciary Committee.  This amendment would reverse the Supreme Court’s approval of the ACA individual mandate.

S. 58to repeal the Cadillac Plan tax (see also S. 40), was introduced January 9 and referred to the Senate Finance Committee.

We didn’t take ten weeks off because there was nothing to talk about.  Rather, we concluded around Labor Day that anything useful to be said about ACA compliance, pre-election, would be interpreted as political advocacy, so we decided to watch and wait.  The anti-ACA candidate won, and his party carried Congress, too.  That settles that, right?  Probably not, at least for 2017.  Here’s why.

Have you ever heard of federal legislation that repealed and waived payment of tax debts already accrued?  Neither have we.  Employer mandate taxes have accrued monthly since January 2015.  Now that the election is over, we expect IRS to begin mailing proposed assessments, followed by assessment notices, based on data collected from Exchange subsidy certifications and insurer and employer information reports.  To our knowledge, neither the President elect, nor anyone on his team promised otherwise.  And if they had, that promise would be exceedingly hard to keep.

The ACA actually is two laws, once of which (Pub. L. 111-152) was passed by a bare Senate majority in a process called “budget reconciliation” that is filibuster-proof.   Go ahead, click the link.  What’s in there can be repealed by budget reconciliation.  Here’s a hit list of headings:

Sec. 1001. Tax credits.

Sec. 1002. Individual responsibility.

Sec. 1003. Employer responsibility.

Sec. 1004. Income definitions.

Sec. 1005. Implementation funding.

Subtitle B—Medicare

Sec. 1101. Closing the medicare prescription drug ‘‘donut hole’’.

Sec. 1102. Medicare Advantage payments.

Sec. 1103. Savings from limits on MA plan administrative costs.

Sec. 1104. Disproportionate share hospital (DSH) payments.

Sec. 1105. Market basket updates.

Sec. 1106. Physician ownership-referral.

Sec. 1107. Payment for imaging services.

Sec. 1108. PE GPCI adjustment for 2010.

Sec. 1109. Payment for qualifying hospitals.

Subtitle C—Medicaid

Sec. 1201. Federal funding for States.

Sec. 1202. Payments to primary care physicians.

Sec. 1203. Disproportionate share hospital payments.

Sec. 1204. Funding for the territories.

Sec. 1205. Delay in Community First Choice option.

Sec. 1206. Drug rebates for new formulations of existing drugs.

Subtitle D—Reducing Fraud, Waste, and Abuse

Sec. 1301. Community mental health centers.

Sec. 1302. Medicare prepayment medical review limitations.

Sec. 1303. Funding to fight fraud, waste, and abuse.

Sec. 1304. 90-day period of enhanced oversight for initial claims of DME suppliers.

Subtitle E—Provisions Relating to Revenue

Sec. 1401. High-cost plan excise tax.

Sec. 1402. Unearned income Medicare contribution.

Sec. 1403. Delay of limitation on health flexible spending arrangements under cafeteria

plans.

Sec. 1404. Brand name pharmaceuticals.

Sec. 1405. Excise tax on medical device manufacturers.

Sec. 1406. Health insurance providers.

Sec. 1407. Delay of elimination of deduction for expenses allocable to medicare part

D subsidy.

Sec. 1408. Elimination of unintended application of cellulosic biofuel producer credit.

Sec. 1409. Codification of economic substance doctrine and penalties.

Sec. 1410. Time for payment of corporate estimated taxes.

If it was not passed by budget reconciliation, it probably can’t be repealed by budget reconciliation.  But in any event, there must first be a budget to which taxes and spending may be reconciled.  That normally takes months, and in recent years, budget passage has been the exception, rather than the rule.  It would be highly ironic, it seems to us, if the new President were to take Obama-like “executive action” simply to decline to enforce the employer mandate.   So, we expect employer mandate tax assessment and collection in 2017, regardless of the success or failure of ACA repeal or reform legislation.

Similarly, once employers learn the identities of employees who bought Exchange coverage with subsidies, those employees will be protected from employer retaliation under ACA § 1558 (29 U.S.C. § 218C).  In June, HHS began mailing 2016 subsidy certification notices, naming those employees.  Open enrollment for 2017, now underway, will produce many more notices, protecting many more employees.  This anti-retaliation law (see Pub. L. 111-148) cannot be repealed by budget reconciliation; 60 Senate votes will be needed.  We can’t count that high, and we don’t expect OSHA to simply ignore retaliation charges filed under the statute.

The same goes for the ACA’s big coverage cost drivers passed as amendments to ERISA, the PHS Act and the tax Code as part of Pub. L. 111-148 – e.g., limited age banding, prohibition of annual and lifetime limits, health status discrimination prohibitions, preventive health services mandates, guaranteed issue and renewal, etc.  If a reform or repeal bill can’t carry those loads, they may be thrown overboard.

There may be a Senate majority for repeal of the Cadillac Plan Tax (delayed until 2020 already), and perhaps the individual and employer mandate taxes – we can’t imagine one going down to defeat without the other. But the Medicare surtax?  Does the party in power want to be blamed for penury of the Medicare hospital insurance trust fund?

Congress may agree to repeal the Independent Payment Advisory Board – what some have called a “Death Panel.”  It’s in § 3403 of Pub. L. 111-148 (42 U.S.C. § 1395kkk).  It is widely unpopular, even though the Medicare growth rate has not yet triggered IPAB action and the agency has not been staffed.

How about reneging on the feds’ promise to pay almost all of the cost of Medicaid expansion?  Or the premium and cost sharing subsidies that have driven almost all of the business being done on the Exchanges?  It’s far easier to pass a new entitlement program than to repeal it.  As President Reagan famously said, the closest thing to eternal life on this Earth is a federal program, and the ACA is a huge federal program.

Probably, the path to 60 Senate repeal votes leads through an array of replacement compromises that will be worked out over more than one session.  The next real inflection point is the mid-term election of 2018.

We are not discounting efforts to change the content of the ACA or the course of ACA enforcement.  We are predicting that our readers won’t know what will be done for many months.  In the interim, you may have to confront ACA compliance issues from which the new Administration cannot provide relief, despite its best intentions and efforts on your behalf.  We’re keeping a sharp watch out.

In the ACA realm, change is the only constant, so don’t take this to the bank.  We’re telling you what we see for the first time, on a first reading of the draft 2016 Forms and Instructions that the IRS has released since July 7.  “Applicable Large Employers,” their contractors and consultants will use these Forms in early 2017 to report to the IRS coverage offers (and self-insured coverage) extended during 2016. We apologize for the unusual length of this article, but reading it all yourself would take far longer.  Believe us.

Form 1094-C

As for 2015 coverage reporting, each ALE Member will file this to summarize data about its accompanying Forms 1095-C. There’s only one substantive difference for 2016 coverage reporting – Line 22, Box “B,” “Qualifying Offer Method Transition Relief,” which was available only for 2015 coverage, is gone, and Box “B” is now “Reserved.”

In part III, “Section 4980H” was inserted before “Full-Time Employee Count for ALE Member.”  We infer that many 2015 filers were unaware of the important differences between the § 4980H term “full-time” and the term as defined in their policies and plans.  See also page 9 of the Instructions.

Form 1095-C

Just beneath the Form’s title, the IRS has added this instruction to the recipient employee: “Do not attach to your tax return. Keep for your records.”  Sounds like the IRS was deluged this filing season.

The Line 15 title, “Employee Share of Lowest Cost Monthly Premium, for Self-Only Minimum Value Coverage,” was abbreviated.  It’s now, “Employee Required Contribution (see instructions).” Part III references to “SSN” now say “”SSN or other TIN.”

The Instructions for Recipient note that the 9.5% affordability figure is inflation-adjusted.  See also page 13 – 9.56% for plans beginning in 2015 and 9.66% for plans beginning in 2016.  There are short explanations of three, Form 1095-C, Line 14, Series 1 Code changes.  Code 1I, “Qualifying Offer Transition Relief,” is gone, replaced by “Reserved,” as on Form 1094-C, Line 22.  New Code 1J reports, “Minimum essential coverage providing minimum value offered to you; minimum essential coverage conditionally offered to your spouse; and minimum essential coverage NOT offered to your dependent(s).”  New Code 1K indicates, “Minimum essential coverage providing minimum value offered to you; minimum essential coverage conditionally offered to your spouse; and minimum essential coverage offered to your dependent(s).”

2016 Instructions for Forms 1094-C and 1095-C

Do government forms ever get shorter from year to year?  Seventeen pages of 2015 instructions have expanded to 19, and the font is no bigger.

The revisions recited above appear on page 1, under the heading “What’s New.” Immediately thereafter, the IRS advises close attention to the disappearance in 2016, for calendar year plans, of transitional relief that was offered only for 2015.  And, there’s a link to the IRS page that details technical aspects of filing through the IRS AIR system – https://www.irs.gov/for-tax-pros/software-developers/information-returns/affordable-care-act-information-return-air-program.

On page 1 and throughout, references to filing by “employers” have been changed to speak of filing by “ALE Members.” The “Who Must File” section expanded to emphasize that each EIN within a controlled group must file if the group as a whole is an Applicable Large Employer, based, most commonly, on the prior year’s employment data.  That’s nothing new, but maybe some missed that point in 2015.

The explanation of self-insurer reporting on page 2 is longer than last year, and perhaps clearer, but not substantively new.

Specific Instructions for Form 1094-C

The first substantial re-write begins on page 2, providing much-needed clarification of when and how an ALE Member may file multiple Forms 1094-C.  Here it is.

A Form 1094-C must be filed when an ALE Member files one or more Forms 1095-C. An ALE Member may choose to file multiple Forms 1094-C, each accompanied by Forms 1095-C for a portion of its employees, provided that a Form 1095-C is filed for each employee for whom the ALE Member is required to file. If an ALE Member files more than one Form 1094-C, one (and only one) Form 1094-C filed by the ALE Member must be identified on line 19, Part I as the Authoritative Transmittal, and, on the Authoritative Transmittal, the ALE Member must report certain aggregate data for all full-time employees and all employees, as applicable, of the ALE Member.

Example 1. Employer A, an ALE Member, files a single Form 1094-C, attaching Forms 1095-C for each of its 100 full-time employees. This Form 1094-C should be identified as the Authoritative Transmittal on line 19, and the remainder of the form completed as indicated in the instructions for line 19, later.

Example 2. Employer B, an ALE Member, files two Forms 1094-C, one for each of its two operating divisions, Division X and Division Y. (Division X and Division Y are units of the same ALE Member, and thus both report under the same EIN; they are not members of an Aggregated ALE Group.) Attached to one Form 1094-C are Forms 1095-C for the 200 full-time employees of Division X, and attached to the other Form 1094-C are Forms 1095-C for the 1,000 full-time employees of Division Y. One of these Forms 1094-C should be identified as the Authoritative Transmittal on line 19, and should include aggregate employer-level data for all 1,200 full-time employees of Employer B as well as the total number of employees of Employer B, as applicable, as required in Parts II, III, and IV of Form 1094-C. The other Form 1094-C should not be identified as the Authoritative Transmittal on line 19, should report on line 18 only the number of Forms 1095-C that are attached to that Form 1094-C, and should leave the remaining sections of the form blank as indicated in the instructions for line 19, later.

Note. Each ALE Member must file its own Forms 1094-C and 1095-C under its own separate EIN, even if the ALE Member is part of an Aggregated ALE Group. No Authoritative Transmittal should be filed for an Aggregated ALE Group.

Example 3. Assume that Employer A from Example 1 is a member of the same Aggregated ALE Group as Employer B from Example 2. Accordingly, Employer A and Employer B are separate ALE Members filing under separate EINs. Forms 1094-C should be filed in the same manner indicated in Examples 1 and 2. Employer A should include only information about employees of Employer A in its Authoritative Transmittal, and Employer B should include only information about employees of Employer B in its Authoritative Transmittal. No Authoritative Transmittal should be filed for the Aggregated ALE Group reporting combined data for employees of both Employer A and Employer B.

Similar rules apply for a Governmental Unit that has delegated its reporting responsibilities for some of its employees to another Governmental Unit—see Designated Governmental Entity (DGE) in the Definitions section of these instructions for more information. In the case of a Governmental Unit that has delegated its reporting responsibilities for some of its employees, the Governmental Unit must ensure that among the multiple Forms 1094-C filed by or on behalf of the Governmental Unit transmitting Forms 1095-C for the Governmental Unit’s employees, one of the filed Forms 1094-C is designated as the Authoritative Transmittal and reports aggregate employer-level data for the Governmental Unit, as required in Parts II, III, and IV of Form 1094-C.

Example. County is an Aggregated ALE Group made up of ALE Members School District, Police District, and County General Office. School District designates the state to report on behalf of the teachers and reports for itself for its remaining full-time employees. In this case, either the School District or the state must file an Authoritative Transmittal reporting aggregate employer-level data for the School District.

Page 3 does the same to explain when one employee may be reportable by multiple ALE Members.

[A] full-time employee who works for more than one ALE Member that is a member of the same Aggregated ALE Group must receive a separate Form 1095-C from each ALE Member. For any calendar month in which a full-time employee works for more than one ALE Member of an Aggregated ALE Group, only one ALE Member is treated as the employer of that employee for reporting purposes (generally, the ALE Member for whom the employee worked the greatest number of hours of service), and only that ALE Member reports for that employee for that calendar month. The other ALE Member is not required to report for that employee for that calendar month, unless the other ALE Member is otherwise required to file Form 1095-C for that employee because the individual was a full-time employee of that ALE Member for a different month of the same calendar year. In that case, the individual may be treated as not employed for that calendar month. If under these rules, an ALE Member is not required to report for an employee for any month in the calendar year, the ALE Member is not required to report for that full-time employee for that calendar year. For a description of the rules related to determining which ALE Member in an Aggregated ALE Group is treated as the employer for a month in this situation, see the definition of Employee.

Example. Employer A and Employer B are separate ALE Members that belong to the same Aggregated ALE Group. Both Employer A and Employer B offer coverage through the AB health plan, which is an insured plan. In January and February, Employee has 130 hours of service for Employer A and no hours of service for Employer B. In March, Employee has 100 hours of service for Employer A and 30 hours of service for Employer B. In April through December, Employee has 130 hours of service for Employer B and no hours of service for Employer A. Employer A is the employer of Employee for filing purposes for January, February, and March. Employer A should file Form 1095-C for Employee reporting offers of coverage using the appropriate code on line 14 for January, February, and March, should complete lines 15 and 16 per the instructions, and should include Employee in the count of total employees and full-time employees reported for those months on Form 1094-C. For the months April through December, on Form 1095-C, Employer A should enter code 1H (no offer of coverage) on line 14, leave line 15 blank, and enter code 2A (not an employee) on line 16 (since Employee is treated as an employee of Employer B and not as an employee of Employer A in those months), and should exclude Employee from the count of total employees and full-time employees reported for those months on Form 1094-C.

It’s hard to read, but we’re glad it’s there.  Also on page 3, the IRS notes that the paper filing date will be February 28, 2017 and the e-filing date will be March 31, 2017.  This year, extensions will be available only by request, and page 3 includes instructions about where to get and how to use Form 8809 for that purpose.

Page 4 discusses e-filing rules at greater length than last year and notes the penalty increase from $250 to $260 per Form.  See also page 6.  But it’s not all gloom and doom.

If you are required to file electronically but fail to do so, and you do not have an approved waiver, you may be subject to a penalty of $260 per return for failure to file electronically unless you establish reasonable cause. However, you can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically. The penalty applies separately to original returns and corrected returns.

The correction “how to” chart on page 5 adds the requirement to correct a Form 1094-C Authoritative Transmittal if the original filing incorrectly reported the other members of the ALE Group.

Page 6 notes that Forms 1095-C are to be delivered to the employee recipients by January 31, not February 1, as last year.

Page 7 clarifies that Code 1A, “Qualifying Offer Method,” properly entered on Line 14 of Form 1095-C relieves the ALE Member from any obligation to fill the related box on Line 15 or on Line 16.

Page 9 clarifies that employers sponsoring non-calendar year plans may have early 2016 months of 2015-only transition relief, because those months were part of the 2015-2016 plan year.  This includes the 50-99 “smaller large employer” relief and the 70% offer transitional relief that applied only for 2015.  Page 9 also notes that an employee who terminates during a 2016 stability period, having been measured full-time in the associated, prior measurement period, must be reported on Form 1094-C as a full-time employee, regardless of his or her average hours of service during 2016.

Specific Instructions for Form 1095-C

Page 10 notes that the ALE Member contact listed on Line 10 need not be the contact listed on Line 8 of Form 1094-C.  Also, filers are admonished never to leave Line 14 blank, even for months before and after employment.

Page 11 is almost entirely new text, explaining in helpful detail how to code on Line 14 COBRA coverage offers and retiree coverage offers.  Here’s the Example provided:

During the applicable open enrollment period for its health plan, Employer makes an offer of minimum essential coverage providing minimum value to Employee and to Employee’s spouse and dependents. Employee elects to enroll in employee-only coverage starting January 1. On June 1, Employee experiences a reduction in hours that results in loss of eligibility for coverage under the plan. As of June 1, Employer terminates Employee’s existing coverage and makes an offer of COBRA continuation coverage to Employee, but does not make an offer to Employee’s spouse and dependents. Employer should enter code 1E (Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse) on line 14 for months January – May, and should enter code 1B (Minimum essential coverage providing minimum value offered to employee only) on line 14 for months June – December.

Page 12 (see also page 17) reiterates that new Line 14 codes 1J and 1K are conditional offer variants of codes 1D and 1E, respectively, and defers Line 15 employee cost guidance to the “Employee Required Contribution” section of the Definitions on page 15.

On page 13, and in the “Tip” on page 17, the IRS continues its Delphic guidance about how Line 16, Code 2E applies when an employer seeks § 4980H credit for coverage offers made to its common law employees by their Form W-2 employer, e.g., a temp staffing firm.  Suppose that an employer seeking such credit sponsors a self-insured plan.  The 2016 Instructions read, “For this [Part III] purpose, employer-sponsored self-insured coverage does not include coverage under a multi-employer plan.”  Our initial guess is that the IRS means to say so only for purposes of reporting covered individuals in Part III.  We remain concerned about the lack of published IRS guidance regarding whether an employer will be assumed to participate in a MEWA if it enters Code 2E on Line 16 in order to claim credit for coverage offers made by a temp staffing firm.

Definitions

Page 14 adds a link to the IRS page on § 4980H employer aggregation rules.

Page 15 adds this definition of “Employee Required Contribution” for Form 1095-C, Line 15 affordability determinations.

Employee Required Contribution. The Employee Required Contribution is the employee’s share of the monthly cost for the lowest-cost self-only minimum essential coverage providing minimum value that is offered to the employee by the ALE Member. The employee share is the portion of the monthly cost that would be paid by the employee for self-only coverage, whether paid through salary reduction or otherwise

For purposes of determining the amount of the employee’s share of the monthly cost, an ALE Member may divide the total cost to the employee for the plan year by the number of months in the plan year. This monthly amount of the employee’s share of the cost would then be reported for any months of that plan year that fall within the 2016 calendar year. For example, if the plan year begins January 1, the ALE Member may determine the amount to report for each month by taking the total annual employee cost for all 12 months and dividing by 12. If the plan year begins April 1, the ALE Member may determine the amount to report for January through March, 2016, by taking the total annual employee cost for the plan year ending March 31, 2016, and dividing by 12 (and reporting that amount for January, February, and March 2016). Then the ALE Member may determine the monthly amount for April through December, 2016 by taking the total annual employee cost for the plan year ending March 31, 2017, and dividing by 12 (and reporting that amount for April through December 2016).

The Employee Required Contribution may not be the amount the employee paid for coverage. For additional rules on determining the amount of the Employee Required Contribution, including for cases in which an ALE Member makes available certain HRA contributions, cafeteria plan contributions, wellness program incentives, and opt-out payments, see Regulations sections1.5000A-3(e)(3)(ii) and 1.36B-2(c)(3)(v)(A). Also see Notice 2015-87.

Also on page 15 begins a longer explanation of what “Full-Time Employee” means, apparently to correct common employer filing errors for 2015.  We noted this part especially:

Under the look-back measurement method, an employee is a full-time employee for each month of the stability period selected by the ALE Member if the employee was employed an average of least 30 hours of service per week with the ALE Member during the measurement period preceding that stability period. (The look-back measurement method for identifying full-time employees is available only for purposes of determining and computing liability under section 4980H, and not for purposes of determining if the employer is an Applicable Large Employer.)

Pages 18-19 describe in great detail the trailing effects for 2016 reporting of 2015-only transitional relief by employers with non-calendar year plans.

We close with this good news:  As in 2105, the IRS estimates that you will need just four hours to complete and file your Form 1094-C and just twelve minutes to complete and file each Form 1095-C.  If there’s an appropriate emoji here, suggest it, please.

Jed, employed by Drysdale LLC, a janitorial contractor, recently began working nights at the Commerce Bank, supervised by the Bank’s Chief of Security.  Jed’s family had health insurance until his wife lost her job early this year.  Drysdale didn’t offer insurance, so Jed bought a policy through Healthcare.gov.  With the federal subsidy, his premium is less than $50 monthly.

About six weeks ago, Drysdale got a Marketplace notice of the subsidy granted to Jed.  After consulting its lawyer, Drysdale amended its standard contract to negate any indemnity obligation to customers for ACA taxes and penalties imposed on the customer with respect to Drysdale employees.  The Bank noticed the change and inquired.  Drysdale explained, using Jed’s example, that the Bank could have ACA obligations to Jed independent of Drysdale’s obligations to Jed.

On July 5, the Bank asked for a replacement after Jed was found asleep in a computer closet.  Drysdale removed Jed from the Bank and has not reassigned him.

Today, Drysdale and the Bank received OSHA notices that Jed (represented by a labor union) had charged them with retaliation in violation of FLSA § 218c, which reads, in relevant part:

218c. Protections for employees

(a) Prohibition

No employer shall discharge or in any manner discriminate against any employee with respect to his or her compensation, terms, conditions, or other privileges of employment because the employee (or an individual acting at the request of the employee) has—

(1) received a credit under section 36B of title 26 or a subsidy under section 18071 of title 42;

[…]

(b) Complaint procedure

(1) In general

An employee who believes that he or she has been discharged or otherwise discriminated against by any employer in violation of this section may seek relief in accordance with the procedures, notifications, burdens of proof, remedies, and statutes of limitation set forth in section 2087(b) of title 15.

(Emphasis ours.)  When Jed applied for his subsidy, he was given three notices of this retaliation protection.  Much to the employers’ surprise, they have only a few weeks to prove that Jed would have suffered the same fate even if they had been ignorant of his subsidy.  But Jed says that he and the Security Chief had a deal: If Jed finished his work an hour early, he could nap before leaving for his day job.  And OSHA’s rules say that Jed’s proof “burden may be satisfied, for example, if the complaint shows that the adverse action took place shortly after the protected activity, giving rise to the inference that it was a contributing factor in the adverse action.” 29 CFR § 1984(e)(3).  Very probably, OSHA will issue a preliminary order reinstating Jed who, by the way, is now a union organizer.  A damages trial will follow some months later.

Why is this the Bank’s problem?  Because DOL enforces this law, and DOL’s “employee” definition is even broader than the definition used by the IRS.  You may “employ,” for this purpose, a worker whom the IRS would recognize as an independent contractor.  Jed’s supervision by the Bank’s Chief of Security goes a long way toward proving that the Bank was Jed’s joint employer.

Why is this Drysdale’s problem?  Because it opened the Marketplace subsidy notice envelope.  As we explained in several prior articles, there are ways to appeal subsidy errors without acquiring notice of the identities of subsidy recipients who might be among your employees.  If you have not established those procedures yet, now would be a very good time to do so.