ACA Reporting: The Impact on Cobra and Account based Plans

The page below explains how your account-based health plans (HRAs, FSAs, and HSAs), and COBRA coverage, could impact your reporting ACA reporting obligations.  

The good news: most account-based plans won’t have any impact on your ACA reporting, with the exception of a small number of HRAs.  

However, COBRA coverage is likely to have a larger impact on many employers, since individuals on COBRA may need to be reported in some circumstances.  

Click the subject headings below for general information about ACA reporting and details specific to account-based plans and COBRA.


+General ACA Reporting Information

There are 2 main purposes to ACA reporting, each detailed in a separate Code section.

Code § 6055

Code § 6055 (reporting on B forms or C forms) requires coverage providers to report the presence of coverage for individuals in order to allow the IRS to properly enforce the individual mandate and exchange subsidy eligibility. For fully-insured health benefits, the insurance carrier will complete this reporting. Employers providing self-insured health coverage will need to satisfy this reporting obligation directly.

Code § 6056

Code § 6056 (reporting on C forms) requires Applicable Large Employers (ALEs) – those with 50 or more full-time equivalent employees in the prior year – to report whether employees were offered affordable, minimum value coverage by their employer, and whether they accepted those offers. The IRS will use this information to assess whether an employer is subject to Pay or Play penalties.

Reporting Forms and Deadlines

Because the C-Series forms (1094-C and 1095-C) apply to both codetions, most large employers will use those forms exclusively. B-Series forms (1094-B and 1095-B) will typically be used by insurance carriers and small employers who happen to offer self-insured medical coverage.

These forms will generally be used to report major medical coverage, but technically apply to any health plan providing Minimum Essential Coverage (MEC). MEC does not necessarily constitute extremely substantial coverage (it shouldn’t be confused with Minimum Value coverage), it simply means health coverage that isn’t classified as Excepted Benefits.

Deadlines for reporting of 2016 coverage in early 2017 were modified slightly pursuant to IRS notice 2016-70. Employers should be aware that the extension only applies to the due date for distributing forms to employees, and did not alter the deadline to report information to the IRS. Employers subject to the reporting requirement must deliver (by mail or hand) copies of the 1095 forms to individuals no later than March 2, 2017. Copies of the 1095 forms, along with the 1094 transmittal form, must be submitted to the IRS by February 28, 2017 (if filing on paper) or March 31, 2017 (if filing electronically).


+COBRA

COBRA Reporting Overview

In many circumstances, individuals continuing coverage on an employer’s health plan through COBRA will still need to be reported under ACA. Most employers will use the 1095-C form to report this coverage.

If BPC provides COBRA administrative services for your organization, we will provide a report for you to download by the end of February. The report will detail which former employees and other individuals had coverage during the course of 2015. Reports can be provided earlier, upon request to our COBRA team. Individuals in your organization with appropriate access will receive an email when the report is available, which will include instructions about how to download it.

Please also note that some employees who terminate late in 2015, may elect 2015 coverage in early 2016. BPC will promptly report any such elections to you, because in some cases those elections may require you to revise or add to your ACA reporting. For example, you may report that a former employee had no coverage in December 2015, but that former employee might wait until February 2016 to affirmatively make that election. The postponed reporting deadlines announced in IRS Notice 2016-4 alleviate most of this concern with respect to reporting 2015 coverage.

For more details about how individuals on COBRA should actually be reported, click the appropriate sections below:

Former Employee on COBRA (who terminated in the same calendar year)

Former Employee on COBRA (who terminated in the same calendar year): In this circumstance, COBRA is not reported as an offer of coverage, so Line 14 should generally be populated with Code 1H (no offer of coverage). Note that this reverses earlier IRS guidance. Line 15 should be left blank, since an employer has no obligation to offer affordable coverage to a non-employee. Line 16 should typically be populated with 2A (employee not employed during the month). If coverage is lost in the middle of the month, the IRS has clarified that employers should use code 2B for that month. Part III should be completed for the former employee and any dependents covered by your self-insured medical plan.

Active Employee on Cobra (due to reduction in hours)

Active Employee on COBRA (due to reduction in hours): In this circumstance, COBRA is reported as an offer of coverage, so Line 14 should include the same code that would be appropriate for an active employee. In Line 15 you’ll enter the COBRA premium for the lowest cost self-only MEC coverage. In Line 16, you’ll use code 2C for an employee who enrolls, and typically code 2B if the employee does not. Code 2B will indicate the employee is not a full-time employee in that month, therefore the employer won’t incur a penalty if the coverage is not affordable. Part III should be completed for the former employee and any dependents covered by your self-funded medical plan.

Individuals Who Were Not Employees in the Year Reported

Individuals who were not employees in the year reported: Such individuals will include family members who may have independently elected coverage, or former employees who terminated in a prior calendar year. These individuals will not factor into Employer shared responsibility penalties, so they don’t technically need to be reported on a 1095-C or reported by any employer with respect to a fully-insured plan (since the carrier will report their coverage). When such an individual is covered on an employer’s self-insured plan, that coverage does still need to be reported. It can be reported on a 1095-B form, which is relatively straightforward since there’s no need to classify the individuals based on their relationship to the employer. However, many employers already using the 1095-C forms will want to do all reporting on those forms.

Individuals who were not employees in the year reported: Such individuals will include family members who may have independently elected coverage, or former employees who terminated in a prior calendar year. These individuals will not factor into Employer shared responsibility penalties, so they don’t technically need to be reported on a 1095-C or reported by any employer with respect to a fully-insured plan (since the carrier will report their coverage). When such an individual is covered on an employer’s self-insured plan, that coverage does still need to be reported. It can be reported on a 1095-B form, which is relatively straightforward since there’s no need to classify the individuals based on their relationship to the employer. However, many employers already using the 1095-C forms will want to do all reporting on those forms.

To the extent that a non-employee individual is covered by your self-insured plan, and you are using the 1095-C to report that coverage, use the following codes. In Line 14, enter Code 1G (offer to non-employee). Lines 15 & 16 will be blank.


+Health Reiumbursement Arrangements (HRAs)

HRA Overview

Most HRAs, unless restricted to dental and vision expenses, will constitute MEC. However, only a few HRAs in the marketplace will need to be reported. The final versions of the IRS instructions for the forms (unlike some earlier versions) provide that if an HRA is integrated with the major medical plan of the same employer, it does not need to be reported. Integration in this case means that only employees enrolled in the major medical plan can be enrolled in the HRA. This exception covers most, but not all, HRAs.

This means that the following types of HRAs may still need to be reported

  • HRAs that cover medical expenses and are integrated with another employer’s group health plan.
  • Some Retiree HRAs (because they usually are not integrated with any health plan).
  • Some HRAs in a spend-down or “wasting” status (because they are usually not integrated with any health plan). While no new funds are being added, employees covered by such HRAs are still viewed by the IRS as receiving MEC for any month covered by the HRA.

If your HRA fits one of the categories above, we will refer to it as a “Reportable HRA”. For more info about how your Reportable HRA may need to be reported, click the appropriate classification below.

Small employer, fully-insured major medical:

You probably don’t have any reporting obligation other than with respect to your Reportable HRA. Because it does constitute Minimum Essential Coverage, and it is provided by you as the employer, it should be reported as coverage on the B-Series forms.

Small employer, self-insured major medical:

If your major medical plan is self-insured, then you probably already planned on reporting that coverage on the B-Series forms. Any employees who have both your major medical and your Reportable HRA coverage need only be reported once. However, employees or former employees who have only Reportable HRA coverage will need to be added into the reporting.

Large employer, fully-insured major medical:

Large employers under the ACA need to report on the C-Series forms to indicate whether they have appropriately offered affordable, minimum value coverage to their employees. Part III of the 1095-C allows employers to also capture and report any self-insured coverage they provided, which would include the Reportable HRA. So employers in this boat will fill out the 1095-C forms normally, but will need to add Reportable HRA coverage into Part III.

Note that in some cases this may mean that you report an employee had coverage, even though he or she may have declined to participate in the major medical plan. You would report them as having coverage in Line 16, and in Part III.

Large employer, self-insured major medical:

Employers in this category are already planning to report on the C-Series, including Part III of the 1095-C. Having a Reportable HRA in the mix won’t change much. Individuals with coverage under both your self-insured major medical and your Reportable HRA need only be reported once. But individuals with Reportable HRA coverage, who do not have your self-insured major medical coverage, will need to be reported in Part III.

Note that in some cases this may mean that you report an employee had coverage, even though he or she may have declined to participate in the major medical plan. You would report them as having coverage in Line 16, and in Part III.

Retiree HRAs

Generally speaking, HRA coverage provided to retirees will be reportable, but only under Code § 6055 – reporting they had coverage. It will not impact Code § 6056 obligations and factor into the employer’s potential pay or play penalties. Therefore, this coverage can typically be reported on B-Forms, or on C-Forms indicating the individuals with coverage are not employees. See the COBRA section on Individuals Who Were Note Employees in the Year Reported for technical reporting details. For retirees who started the year as active employees, see the COBRA section on Former Employee on COBRA (who terminated in the same calendar year) for technical reporting details.


+Flexible Spending Accounts (FSAs)

Virtually all flexible spending accounts are classified as excepted benefits today. To achieve that classification, the plan must generally be setup so that only employees eligible for the group’s major medical can participate, and the employer does not contribute more than $500 (or more through a dollar for dollar match). FSAs restricted to dental and vision expenses can also be treated as excepted benefits and therefore do not need to be reported.


+Health Savings Accounts (HSAs)

Health Savings Accounts will not impact ACA reporting, although the high-deductible health plan they are associated with will require reporting from either the insurance carrier or plan sponsor, just like any other major medical plan.