With 2015 just around the corner, employers are facing a new wave of requirements under the Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010 (HCERA) (collectively, the Affordable Care Act (ACA)). These requirements include the "employer mandate" and additional reporting requirements under Sections 6055 and 6056 of the Internal Revenue Code (IRC). Practical Law asked Christina M. Broxterman and Laura Summers of Ogletree, Deakins, Nash, Smoak & Stewart, P.C. for recommendations on handling some of the most common questions being posed by employers in preparing for these rules.

The employer mandate and upcoming reporting requirements are raising unique challenges. The employer mandate requires applicable large employers (ALEs), which are, generally, employers with 50 or more "full-time" employees (the rules count employees of related entities and have formulas for aggregating part-time employees into full-time equivalents), to offer coverage to full-time employees and dependents (other than spouses). Failure to satisfy the employer mandate can result in penalties if a full-time employee receives government premium assistance through the marketplace (federal or state exchanges). Additionally, beginning in 2015, the ACA imposes new reporting requirements that will assist the Treasury Department in enforcing the employer and individual mandates.

To avoid penalties under the employer mandate, an employer must offer its full-time employees health coverage. There are two possible penalties under the employer mandate:

To avoid the no coverage penalty, an ALE is not required to offer every full-time employee (and dependents) coverage, but rather only substantially all. However, an ALE which meets the substantially all threshold may nonetheless become subject to the inadequate coverage penalty if a full-time employee who was not offered coverage receives premium assistance on the marketplace.

To help ease employers into the employer mandate requirements, Treasury provided the following transition rules for 2015:

For more on the rules for determining who is a full-time employee for purposes of calculating payments under the employer mandate, see Practice Note, Employer Mandate under the ACA: Determining Full-time Employees for Employer Payments.

No. While related entities are taken into account in determining whether an employer is an ALE, the determination of whether an ALE complies with the employer mandate is applied on an entity-by-entity basis. For example, if an ALE offers coverage to substantially all of its full-time employees and their dependents (70% in 2015 and 95% thereafter), the ALE will not be subject to the no coverage penalty even if a related ALE fails to do so.

No. An ALE must only offer coverage to full-time employees and their dependents. The employer mandate does not hold ALEs responsible for individuals who decline enrollment.

No. The IRS has stated that an employer policy that reimburses employees on a tax-free basis for premiums of non-employer sponsored health coverage (for example, coverage purchased through or outside the marketplace) is not permitted under the ACA beginning January 1, 2014. The IRS considers this type of arrangement to be an "employer payment plan" that violates the prohibition against annual limits, and has indicated that such arrangements could result in a $100 per day excise tax per applicable employee.

In recent guidance, the agencies have also restricted employers' ability to provide premium reimbursements for non-employer sponsored coverage on an after-tax basis.

The term "skinny plan" is often used to refer to benefit options that provide lower benefits or exclude certain "essential health benefits" under the ACA. These plans may not meet the employer mandate's minimum value requirements, but may be attractive to employers and lower wage workers due to their lower cost.

Employers should proceed cautiously in implementing skinny plans. If a skinny plan is offered alongside a benefit option that meets the employer mandate (that is, provides minimum value and is affordable), employer mandate penalties should not be an issue. However, skinny plans must meet the ACA's other requirements (for example, the prohibition on preexisting condition exclusions, excessive waiting periods and annual or lifetime dollar limits). If a skinny plan is the only coverage option, an ALE may face employer mandate penalties, at least with respect to the inadequate coverage penalty.

Maybe. Whether a student's working hours are counted for determining full-time employee status depends on the nature of the student's employment. The following general guidelines may be helpful:

Student employees should be closely scrutinized to determine how they affect employer mandate liability. Often ALEs are finding that the substantially all rule removes risk for the no coverage penalty due to the small size of the student workforce. Some ALEs are restructuring their internship programs so that the student employees do not extend past the permissible waiting period, or are decreasing the hours that individuals are allowed to work under these programs.

For more on the ACA's 90-day limit on waiting periods, see Practice Note, Ninety-day Limit on Waiting Periods under the ACA.

Maybe. Under IRS interim relief, an employer will not be subject to employer mandate payments for those employees for whom it must contribute to a multiemployer plan pursuant to a collective bargaining agreement. The multiemployer plan's coverage must be affordable, provide minimum value and be offered to dependent children.

Many employers are working with the multiemployer plans to confirm whether they can take advantage of this relief, which includes requesting both:

Some employers are negotiating with unions to allow employees who are full-time under the ACA (but who are not participating in a multiemployer plan) to be placed into the employer's single-employer plan. Other employers are negotiating to have the multiemployer plans modified to allow these individuals to enroll upon classification as a full-time employee under the ACA. Fortunately, the 70% transition rule discussed above provides additional time for employers that have a small percentage of collectively bargained employees before they need to worry about significant financial exposure (under the no coverage penalty).

The answer depends on whether the ALE is the "common law" employer of the temporary employees, which generally means the ALE (and not the staffing firm) has the right to oversee and direct how the employee's work is done. Where an ALE is the common law employer, the ALE may be required to offer coverage to the full-time, temporary employees obtained through a staffing firm. However, the rules allow staffing firms to make an offer of coverage under the staffing firm's health plan on behalf of the ALE. If this is done, the staffing firm's offer of coverage will be treated as made by the ALE if both:

The above rule has resulted in employers renegotiating their current staffing agreements to reflect a higher fee for employees that participate in the staffing firm's health plan. The rules do not specify the amount of the higher fee, but many employers are tying it to the costs incurred by the staffing firm for providing coverage. Some employers are requesting that the staffing firms agree to indemnify them in the event of non-compliance with the ACA as it relates to the temporary employees.

If the temporary employees are not an ALE's common law employees, then the ALE does not need to offer the temporary employees coverage for employer mandate purposes. However, because the determination of whether an individual is a common law employee often falls within a gray area and may change over time, some ALEs are requiring the staffing firms to provide coverage for an additional fee to the full-time, temporary employees that it provides to the ALE. This approach minimizes the risk for employer mandate penalties, for example, if the ALE had wrongly concluded the staffing firm was the common law employer or if the employee's common law employer changes over time.

If eligibility rules under an ALE's health plan are modified to satisfy the employer mandate, the plan document, summary plan description (SPD) and any other employee communications related to eligibility under the plan should be updated to reflect the new eligibility requirements. Given the complexity of the measurement period rules that may apply in determining full-time employee status, many ALEs are adding high-level summaries of the eligibility rules in the SPD (or to SPD supplements), and reserving details on the measurement period for internal policies.

If a participant pays for health coverage on a pre-tax basis, IRC Section 125 generally restricts the ability to revoke or modify coverage under the health plan mid-year unless the participant has undergone a "change in status" that is accompanied by a loss in eligibility for health coverage. Employers have questioned how to coordinate these restrictions with employees who are able to enroll in the marketplace outside of an open enrollment period. In September 2014, the IRS addressed these questions by expanding the change in status rules under two scenarios.

First, the IRS addressed employees who transition from full-time to part-time positions who desire to drop the employer's health coverage but who, because of an employer's measurement period rules, will remain eligible for health coverage for a period of time while a part-time employee (generally to the end of the "stability period" that corresponds with the measurement period). Because the employee's employment status change would not be accompanied by a loss of coverage, the IRC rules would not permit a mid-year election change. However, the new IRS guidance allows employers to permit prospective election changes if both:

Note that the guidance does not allow an employee who moves to a part-time position to simply drop coverage (an intent to enroll in other coverage must exist). Also, it is not a foregone conclusion that the employee will have access to premium assistance through the marketplace. That assistance is unavailable where the employee is eligible for minimum essential coverage from the employer and the coverage is found to be affordable and provide minimum value.

The second scenario involves an employee who wants to seamlessly drop employer plan coverage and instead buy marketplace coverage. While the current IRC Section 125 cafeteria plan rules allow mid-year election changes on account of a change in coverage under another "employer plan" (due to a different plan year or an election change permitted under that other employer plan), the marketplace plans are not employer plans. As a result, without the new guidance, election changes would not be allowed where the marketplace and employer plan annual enrollment are out of sync, or where a special enrollment allows mid-year enrollment in a marketplace plan. The IRS guidance made changes to increase flexibility and allow a prospective election change if the following two conditions are met:

In both scenarios, employers may rely on an employee's reasonable representation that the revocation and election correspond to the intended enrollment of the employee and any covered dependents. Not surprisingly, elections to revoke coverage cannot be made on a retroactive basis. All changes must be prospective. Also, the new IRS guidance does not apply to changes in flexible spending account coverage.

To include these new election changes, a cafeteria plan must be amended to provide for the election changes on or before the last day of the plan year in which the election changes are allowed. If an employer wants to allow these election changes for a plan year that begins in 2014, it has more time to amend (until the last day of the plan year that begins in 2015).

There are two new reporting requirements that start in 2015. One is aimed at requiring entities to report to the IRS whether they provide minimum essential coverage (this requirement is based on IRC Section 6055), and the other is aimed at requiring ALEs to report the health coverage they provide to full-time employees (this requirement is based on IRC Section 6056). Employers who sponsor self-insured health plans are responsible for IRC Section 6055 reporting. For fully-insured plans, this obligation falls on the insurance company.

These reporting requirements will operate very similarly to Form W-2 reporting. There are individual tax forms that are issued to impacted employees, and then there are summary transmittal forms that are provided to the IRS.

The IRS will use the IRC Section 6055 reporting, which will reflect the months that an individual was covered by minimum essential coverage, to enforce the individual mandate (imposing a tax on certain individuals without health coverage). The IRS has advised that it will be cross-referencing reported information with the information reported on the individual's Form 1040. Insurers and those non-ALE employers who self-insure plans will use Forms 1094-B (IRS transmittal form) and 1095-B (furnished to the IRS and impacted individuals). For ALEs that sponsor self-insured plans, the reporting will be done on Forms 1094-C (IRS transmittal form) and 1095-C (furnished to the IRS and impacted individuals).

The IRC Section 6056 reporting will be used by the IRS to enforce penalties under the employer mandate, and to determine an individual's eligibility for premium assistance in the marketplace. ALEs will report coverage offered to full-time employees and dependents to the IRS. Forms 1094-C and 1095-C will be used to report this information.

For more on the new reporting requirements, see Practice Notes, Information Reporting for Employers That Self-Insure and Insurers (Section 6055) and Information Reporting of Health Insurance Coverage by Large Employers (Section 6056).

For both types of reporting, the forms must be filed with the IRS annually beginning with 2015 (with the 2015 forms due by February 29, 2016 (or March 31, 2016, if filed electronically), with a possible 30-day extension for good cause). Statements to individuals are generally due on January 31 (the first statements would be due January 31, 2016). In general, if an entity must file 250 or more Forms 1095-B or 1095-C during the calendar year, the forms must be filed electronically.

For 2015 reporting, the IRS has stated that for reporting entities that timely file and can show good faith efforts to comply with the reporting requirements, there may be penalty relief for incorrect or incomplete information reported on a return.