On December 15, 2022, the Internal Revenue Service (IRS) finalized regulations regarding Information Reporting of Health Insurance Coverage and Other Issues Under Internal Revenue Code (Code) Sections 5000A, 6055 and 6056 (the Regulation).
Compliance with Code Sections 5000A, 6055 and 6056 generally requires minimum essential coverage providers (e.g., insurers, government-sponsored programs and some self-funded plan sponsors and others) to annually file Forms 1094-B and 1095-B. In addition, Applicable Large Employers (ALEs) must file Forms 1094-C and 1095-C to demonstrate their compliance with the Affordable Care Act’s (ACA) employer shared responsibility rules. These forms provide information that the government needs to provide premium tax credits on the health insurance marketplace and to administer the ACA’s employer shared responsibility rules.
The Regulation, which adopts the substance of a proposed rule issued back in December 2021, makes the following changes:
Status of Certain Medicaid Coverage as Minimum Essential Coverage
The Regulation clarifies that Medicaid coverage that is limited to COVID–19 testing and diagnostic services provided under the Families First Coronavirus Response Act is not minimum essential coverage under the ACA. This change ensures that individuals with only this limited coverage can still qualify for premium tax credits.
Deadline for Furnishing Statements to Individuals
The ACA requires that insurers and plans furnish Forms 1095-B or 1095-C to covered individuals by January 31 of the following year. Under a long-standing rule, the IRS may grant extensions of up to 30 days for good cause upon request. The Regulation makes this extension permanent and automatic, removing the need for a filing or the demonstration of good cause.
Method for Furnishing Statements to Individuals
To ease administrative burdens on employers, the Regulation separately provides that for any year that the penalty applicable to individuals is $0, a reporting entity is permitted to furnish an alternative notice to comply with the ACA’s Section 6055 reporting requirements. (This is in response to a provision of the Tax Cuts and Jobs Act of 2017 that reduced the penalties imposed on individuals for failing to maintain minimum essential coverage). The Regulation requires that a reporting entity first must post a clear and conspicuous notice on the entity’s website that meets specific content requirements and states that responsible individuals may receive a copy of the statement upon request. The reporting entity also must provide Form 1095-B to the requesting individual within 30 days of the date of receipt of the individual’s request.
Importantly, the alternative notice relief does not apply to full-time employees of an ALE that sponsors a self-funded group health plan; these notices must still be distributed directly to full-time employees under the Section 6056 reporting rules. As a result, the ALE may only use the alternative notice method for part-time and non-employees who are enrolled in the ALE’s self-funded group health plan.
Termination of the Good Faith Compliance Period
The ACA imposes penalties where the reports required by Code Sections 6055 and 6056 are inaccurate or incomplete. Recognizing the complexity of these rules, the IRS granted penalty relief for good faith reporting errors from 2015 to 2020. Consistent with the 2021 preamble to the proposed rule, however, the Regulation discontinues this good faith relief. This means that those taxpayers who are penalized for filing reports that contain incomplete or inaccurate information are held to a higher standard to qualify for relief (i.e., they must establish that the lapse was because of reasonable cause and not willful neglect.)
Employers and other Section 6055 reporting entities should review the Regulation—in addition to updated reporting forms and instructions—to familiarize themselves with the timing of information that must be provided and alternative reporting methods under these updated reporting requirements. Employers should also coordinate with their payroll and/or human resource information systems providers to ensure that they meet the Regulation’s requirements.
For more information on these tax and employment benefit issues, please contact your regular McDermott lawyer or one of the authors listed below.
Marchan Clark, a law clerk in the Washington, DC, office, also contributed to this article.