The Internal Revenue Service (IRS) has proposed regulations that clarify the reporting requirements under the Affordable Care Act (ACA) for health reimbursement arrangements (HRAs) and self-funded plans. IRS Notice 2015-68 provided guidance on various issues related to the reporting requirements and indicated that the IRS would be proposing regulations addressing certain issues on which comments were requested.
Reporting is generally required by every entity that provides individuals with minimum essential coverage (MEC). Where reporting would be duplicative, the existing regulations allow an entity providing supplemental coverage to forgo reporting.
The proposed regulations clarify that if an individual is covered by more than one MEC plan provided by the same entity, reporting is required for only one of the plans. The proposed regulations also clarify that reporting is not required for a MEC plan to the extent that the individual is eligible for that coverage only if the individual is also covered by another MEC plan. This rule only applies if the supplemental coverage is offered by the same employer that offers the MEC plan that will do the reporting (with all members of a controlled group of employers treated as a single employer for this purpose).
This means that if an employer with a self-funded medical plan also offers an HRA, only the self-funded medical plan must report. If an employer with an insured group health plan also offers an HRA, only the insured plan has to report the existence of the MEC plan to the IRS. However, if an employer allows its HRA to be integrated with another employer’s group health plan (such as a spouse’s plan), the employer sponsoring the HRA must report the existence of a MEC plan to the IRS, in addition to any reporting that may be due to status as an applicable large employer.
Self-funded plans must report the tax identification number (TIN) of all covered individuals. Penalties apply if a self-funded employer fails to provide correct TINs on a timely basis. Penalties may be waived if the failure is due to reasonable cause and not willful neglect. If an employer can demonstrate that it acted in a responsible manner and that failure was due to significant mitigating factors or events beyond its control, penalties will be waived.
Under existing regulations, in case of a missing TIN, an employer will be treated as acting in a responsible manner in soliciting a TIN if the employer makes:
- An initial solicitation when an account is opened or a relationship is established
- A first annual solicitation by December 31 of the year the account is opened (or January 31 of the following year if the account is opened in December), and
- A second annual solicitation by December 31 of the year following the year in which the account is opened.
Notice 2015-68 provided that, pending the issuance of additional guidance, employers will not be subject to penalties for failure to report a correct TIN if the initial solicitation was made when an individual first enrolled, or by September 17, 2015, if the individual was already enrolled. The Notice said the second solicitation had to be made within a reasonable time and the third by December 31 of the year following the initial solicitation.
The proposed regulations say that for purposes of ACA reporting, an account is considered “opened” on the date an employer receives a substantially complete application for new coverage or to add an individual to existing coverage. Accordingly, self-funded employers can satisfy the requirement for an initial solicitation by requesting TINs as part of the enrollment process. The proposed regulations require that the second solicitation (first annual) be made within 75 days of receipt of the initial application. The deadline for the final notification follows the existing regulations at December 31 of the year following the year in which the application is received.
Under the proposed regulations, if an individual was enrolled on any day before July 29, 2016, the account is considered opened on July 29, 2016. Accordingly, employers have satisfied the requirement for the initial solicitation with respect to already enrolled individuals as long as they requested TINs at any point before July 29, 2016. Employers that did not request a TIN should do so as soon as possible.
Employers can rely on these proposed regulations and Notice 2015-68 until final regulations are issued.