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Affordable Care Act (ACA) – Employer Reporting Updates

ACAUpdate – Employer Reporting Requirements for Forms 1094B/1095B

The latest – The Internal Revenue Service (IRS) issued Notice 2016-4 on December 28, 2015 which announced a filing extension for Forms 1094B/1095B. The revised deadline for employers to provide Form 1094B to employees is March 31, 2016; and filing Form1095B to the IRS is extended to May 31, 2016 for paper filing, and June 30, 2016 for e-filing.  Notice 2016-4 also extends the filing requirement for health insurance carriers to provide Form 1095C to covered employees to March 31, 2016

Background – Employers with 50 or more full-time (equivalent) employees in 2015, must file Forms 1094-C and 1095-C.  The purpose of this filing is enforcement of the employee and employer mandates of ACA. This information is required under sections 6055 and 6056 regarding offers of health coverage and enrollment in health coverage for employees.

According to the IRS, taxpayers are not required to attach Form 1095C as proof of health care coverage when filing their tax return, but note that employees should keep the 1095C they receive from their employer and 1095B they receive from their insurance carrier as proof of coverage.

For further information regarding Forms 1094B and 1094C, the IRS has provided a Questions and Answers to guide you through the process of filing these forms. Click below for the forms and instructions:

IRS Form 1094/5B

Understanding Premium Rating Under the Affordable Care Act (ACA)


Applies to all small employer plans in California

Background

Two years ago the Affordable Care Act’s mandated premium rating method went into effect for small employers (under 50 employees). As of January 1, 2016, all small employers in California (under 100 employees) must be rated according to the ACA rating method. This ACA mandate applies to all insurance carriers and all groups under 100 employees in California.

Key Takeaways

  • Group and individual employee premium rates may be significantly changing due to ACA’s mandated method of calculating premiums – not due to the base cost of medical insurance.
  • The largest premium increases/decreases tend to be:
    • Younger employees (increase) / older employees (decrease)
    • Family size: one child (decrease); two or more children (increase)
    • Families with children over age 21 (large increase)
    • Spouse’s age higher than the employee (increase); lower than employee (decrease)
    • Employees over age 65 with Medicare secondary rates (increase); Medicare primary (decrease)
    • Employees in certain mandated “rating areas” (increase or decrease)

Premium Rating Rule Changes Explained

The premiums calculated under the ACA and legacy (grandmother or large group) methods can have great differences. Premium rate differences between the methods may be driven by any combination of the four rating variants detailed below.

  1. Age Rating. The ACA mandates that each age has its own specific rate and also mandates the relative premium cost between each age rate. This means that each employee has a birthday increase at the start of every plan year as compared to the legacy method which only had age increases when employees crossed an age band threshold (20-29; 30-40, etc.).Compared to the legacy rating method this mandate increases rates for younger people and lowers rates for the older ages. This can result in rates doubling in the younger ages. Many parents are shocked to learn that the ACA mandates a 57.5% premium increase when their 20 year old dependent child turns 21. This is true for all insurance companies.
  2. Family Rating. ACA mandates that each member of a family is individually age-rated and then summed to an employee total. The legacy method had four rating tiers: employee only; employee+spouse; employee+children; and family. The legacy employee+children and family rating did not consider how many or how old the enrolled children were. Under the ACA mandate, the eldest three children under age 21 in each family are age rated in addition to any dependent children age 21 and older. Families with two or more children, and older children, can see significant premium increases under the ACA method. The legacy method did not consider the spouse’s age. Employee+spouse and family categories can experience sharp differences under the ACA method if the spouse is significantly older or younger than the employee.
  3. Medicare Secondary. Under the legacy rating method employees over age 65 employed by groups with fewer than 20 employees were rated below larger firms because their coverage was secondary to Medicare. ACA’s age rating rules eliminate Medicare secondary rates so all 65+’s are rated the same, which causes the legacy secondary employees to have significant premium increases.
  4. Rating Areas. The legacy rating method had nine (9) rating areas in California. California has mandated 19 rating areas under ACA rating rules. The state did not subdivide the 9 into 19 but redrew many of the boundaries. This can create significant premium variances for certain employees that were previously in a relatively lower/higher rating area and have been assigned to relatively higher/lower premium area.

Analysis

Premiums can increase or decrease, on specific employees, on dependents and on the group in aggregate. In many instances the ACA premium increases tend to affect dependent/spouse costs. Firms typically contribute relatively less towards dependent premiums which transfers much of the increase to the employee. For analyzing premium changes, firms should calculate the amount the premium increase effects their employer contribution versus the employee’s contribution. The ACA rating method can cause disruption in the employer and employee contributions based on the change to the ACA age rates. This may require companies to restructure their employer contributions to mitigate large variations in employer or employee contributions for employee only coverage.

To mitigate the rise in premiums the law has brought about since the implementation of ACA, there has been a trend of employees migrating to lower benefit (higher deductible) plans. Migrating to lower premium plans is a tactic being used by many employers and employees.

Employees with children age 21+ may look to enrolling them in a lower benefit plan in the individual market. The individual market has limited plan choices and provider networks, but these trade-offs may yield a lower premium.

If you have any ACA related questions, please email aca@calcpa.org.

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What’s the Buzz Around Health Insurance Captives?

Health Insurance Captives are being touted as the new, hip way for firms to beat the Affordable Care Act.  Captives are insurance arrangements owned/controlled by its participating employers, and while they may not be new, they’re complicated.

Although many terms are used interchangeable, the flavor we’ll discuss in this article is the Group Medical Stop Loss Captives. These are typically used for small and mid-sized employers, which include all but a handful of CPA firms.

With a captive, the employer is at risk and therefore can benefit from the overall underwriting performance as well as income generated by invested reserves.  The captive group is made up of companies that are too small to self-insure and are typically in the same industry.  By combining a number of employers together, critical mass to self-insure as a group is achieved.  The carrot is that employers will (somehow) achieve a lower cost of claims and administration for their employees than they could through traditional market options.

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