ACA Reporting in the Era of COVID

If ACA Reporting for ALEs gives you a headache in a normal year, 2020 could give you a migraine. Here are just some of the complications facing large employers.

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​The Affordable Care Act requires large employers (Applicable Large Employers, called ALEs) to either provide healthcare to their full-time employees or pay a penalty (often called the Play or Pay provision). For 2020, with the coronavirus causing layoffs, furloughs, reduced hours, and in some cases increased hours, ACA reporting is more difficult than usual.
 
ACA Reporting Codes
When compiling ACA employer reporting forms for ALEs, each month every employee’s form must include a code on Line 14 and on Line 16. Line 14 indicates whether the employee was offered coverage, and if so, what type of coverage: did it provide Minimum Essential Coverage (MEC), is coverage of Minimum Value (MV), was it affordable under a safe harbor? Line 16 denotes whether an employee was covered, waived, or was not eligible and in some instances will be left blank. 

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​Line 14 Codes
1A       Offered EE/SP/CH coverage with MEC + MV + < 9.78% of FPL Safe Harbor ($101.79)
1B        Offered EE only coverage with MEC + MV
1C        Offered EE/CH only coverage with MEC + MV
1D       Offered EE/SP only coverage with MEC + MV
1E        Offered EE/SP/CH coverage with MEC + MV (use instead of 1A if plan cost > 9.78% FPL)
1F        Offered coverage with MEC only
1G       Offered self-funded coverage to a NON-FT EE any month of the calendar year
1H       Not offered coverage OR offered coverage that is NOT MEC
1J         Offered EE/SP only coverage with MEC + MV – spouse coverage conditional
1K        Offered EE/SP/CH coverage with MEC + MV – spouse coverage conditional
1L        Offered ICHRA to EE only, affordable based on employee’s home zip
1M      Offered ICHRA to EE/CH, affordable based on employee’s home zip
1N       Offered ICHRA to EE/SP/CH, affordable based on employee’s home zip
1O       Offered ICHRA to EE only, affordability safe harbor based on employment site zip
1P        Offered ICHRA to EE/CH, affordability safe harbor based on employment site zip
1Q       Offered ICHRA to EE/SP/CH, affordability safe harbor based on employment site zip
1R        Offered ICHRA that is not affordable
1S        Offered ICHRA to a NON-FT EE 

​Line 16 Codes
2A       Employee not an employee for that ENTIRE calendar month
2B        Employee not FT AND did not enroll, or
Coverage ended before LAST DAY of month due to termination
2C        Employee ENROLLED for all days of that month
2D       Employee in their waiting period, or
A Variable Hour employee in initial measurement/admin period
2E        Multi-employer plan
2F        If using W-2 affordability safe harbor, and the person waived
2G       If using FPL affordability safe harbor, and the person waived
2H       If using rate of pay affordability safe harbor, and the person waived

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COVID Employment Upheaval
For 2020, ACA employer coding will be more complicated due to fluctuations in employees’ employment status, monthly pay levels, monthly hours worked, and monthly cost for coverage. Getting answers to a laundry list of questions will start the process of understanding how complicated the coding will be for each employer. 

1. Does the employer have full-time (FT) employees, part-time (PT) employees, variable hour (VH) employees?  If they have VH employees and any of the other items below apply, you may need some additional assistance with your form coding.  ACA defines these employees as:
   1. FT = those expected to work more than 30 hours per week or 130 hours per month on a regular basis
   2. PT = those employed to consistently work below this threshold
   3. VH = those where it is uncertain upon hire if they will work above or below the 30 hours weekly or 130 hours monthly
2. Can the employer use one (or more) of the three ACA affordability safe harbors? If they used more than one, which safe harbor did they assign to each employee class?
3. Did employees need to pay more (or less) for coverage during any months?
4. Did employees have a decrease in hours or a decrease in pay?
5. Did employees have an increase in hours or an increase in pay?
6. Were employees laid off/terminated and/or placed on leave/furloughed?
7. Was pay continued during some or all months of leave/furlough?
8. Were benefits continued during some or all months of leave/furlough?

​Typical Full-Time Employee Coding
During a typical calendar year, coding lines 14 and 16 for FT employees is usually straight forward. Let’s assume an employer offers coverage that is MEC, MV, and affordable under the FPL safe harbor. Coding would include:

• For months prior to employment, codes would be 1H (not offered) and 2A (not an employee the entire month)
• During months while in the coverage waiting period, codes would be 1H (not offered) and 2D (in waiting period)
• For months that the employee was offered coverage, the line 14 code would be 1A (Qualified offer), then line 16 would either be 2C (enrolled entire month) or 2G (waived, employer using FPL safe harbor)
• For months after termination, codes would be 1H (not offered) and 2A (not an employee the entire month)Employers with self-funded coverage will also use 1G for months where an individual enrolled on COBRA, with line 16 being left blank.

​An employer will face penalties under the ACA’s Play or Pay rules if they did not offer the right coverage (MEC/MV) to enough of their FT employees or offered coverage that was unaffordable. Coding combinations from month-to-month can trigger penalty letters from the IRS to the employer. We’ll review the penalties at the end of this blog. But first we’ll delve into the changes to codes because of COVID.

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Warning…here is where your head, like mine, will start to hurt. I’ve been dealing with each employer’s ACA reporting on a facts and circumstances basis, using the answers to those 8 questions above. The more items they answer yes to, the more Advil you may need, especially if they have Variable Hour employees. 

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​Full-Time Employee Coding with COVID Changes
With COVID changes to employment status, pay, and premiums, more codes will be required to designate month-by-month changes.

• If a FT employee was furloughed or placed on leave, with or without pay, they will still be considered an active employee under ACA employer Play or Pay rules. This means that the employer was still obligated to either offer coverage or pay a penalty.
  • Did the employer continue to offer coverage with the employee’s cost of premiums being less than the FPL safe harbor? Then they can continue to code Line 14 as 1A (Qualified offer).
  • Did the employer continue to offer coverage, but with the employee’s cost of premiums higher than the FPL safe harbor? Then they must now use code 1E (offered MEC/MV but not affordable under FPL safe harbor) for any applicable months. This may result in ACA’s Penalty B.
  • Did the employer end the employee’s active coverage and offer them COBRA coverage? The employer would code as 1E (offered MEC/MV but not affordable under FPL safe harbor). This may result in ACA’s Penalty B.
  • Did the employer end the employee’s active coverage and not offer them COBRA coverage? The employer would need to code as 1H (not offered) and leave line 16 blank (not covered). This may result in ACA’s Penalty A.
• If a FT employee was laid off (e.g. terminated), then they would no longer be considered an active employee under ACA rules and codes 1H (not offered) and 2A (not an employee the full month) would be used.
• If an employee’s hours were reduced to PT and the employer no longer offered coverage, codes would need to be set at 1H (not offered) and 2B (not a FT employee) for those months.
• If an employee was kept on as an active FT employee but their employee premiums were increased to be higher than the FPL safe harbor, the line 14 code would need to change to 1E (offered MEC/MV, but not affordable under FPL safe harbor). This may result in ACA’s Penalty B.

​These are only some of the changes to coding that could occur. We have not even delved into the codes for employers who use one of the other two affordability safe harbors or Variable Hour employee coding.  

​Rehiring Full-Time Employees
During the past year, many employers had to terminate employees and were then able to rehire them. Under ACA Play or Pay rules, a FT employee can only be subjected to a medical plan waiting period once. With an employee who is termed and rehired, there are specific rules with regards to imposing a new waiting period.  If the employee worked zero hours for 13 or more weeks, then a new waiting period can be required by the employer. Otherwise, no new waiting period can be imposed. 

The pitfall comes when an employer rehires employees withing 13 weeks of their termination and mistakenly makes the employee meet a new coverage waiting period. Under ACA Play or Pay rules, such an employee should be offered coverage 1st of the month following their return to work.  Not offering coverage timely can subject the employer to Penalty B, or in some cases, Penalty A.

​For example, let’s assume an employer has 150 FT employees, all eligible for coverage. They terminated 50 employees as of April 1st and rehired them as of May 15th.

• If the employer offered coverage to all 50 rehired employees as of June 1st, they were compliant.
• If the employer imposed a new coverage waiting period for June and July and offered coverage to these 50 rehired employees as of August 1st, they were not compliant. Penalty A would apply, since they would not have offered coverage to at least 95% of their eligible FT employees. The penalty would beequal to a prorated Penalty A (for the months of June and July) of the $2750 annual penalty per employee (minus first 30 FT employees)

                                   = $2750 annual penalty * (150-30) / 12 months * 2 months
                                   = $55,000 

Newly Hired, then Furloughed
Another potential pitfall for employers is when a newly hired employee, who has not yet met their coverage waiting period, is placed on furlough or leave. Whether paid during the furlough/leave or not, they will still be considered an active employee under ACA employer Play or Pay rules. If the employee met their coverage waiting period during the furlough/leave, they should have been offered coverage as any other FT active employee. If the employer did not offer coverage timely, an ACA penalty may be imminent.
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For example, let’s assume an employee was hired in mid-January, and there is a 60-day waiting period for coverage. They would normally be eligible to start coverage as of April 1st. The employee qualified for paid emergency FMLA as of March 15th due to their child’s school closing. The employee returned to work on June 15th.

• If the employer offered coverage to the employee as of April 1st, they were compliant.
• If the employer did not offer coverage as of April 1st, they were not compliant and the company could be subject to Penalty A (if did not offer coverage to at least 95% of their FT employees) or Penalty B (if the employee purchased subsidized state exchange coverage) during the months of leave.
  • If the employer offered coverage as of July 1st, at that time the employer once again became compliant.
  • If the employer offered coverage upon return, but only after another 2-month waiting period, then the employer was not compliant and may be subject to an ACA penalty during those waiting period months as well.

Variable Hour Employees
Dealing with VH employees through layoffs, furloughs, and shift/pay/premium differentials will run up against the same issues as FT employees. Unfortunately, there are extra pitfalls for those using the Measurement/Administration/Stability method for determining a VH employee’s coverage eligibility. We won’t delve into these here, since it can be much like running down a rabbit hole and typically each VH employee will need to be reviewed on a facts and circumstances basis to determine the best codes for Lines 14 and 15 each month of the calendar year.

​Play or Pay Penalties
More employers may be subject to ACA’s Play or Pay penalties in 2020 than any other year. Without clear guidelines from the Federal government regarding terminations/layoffs and leaves/furloughs, most employers provided what they could to their employees. Now, after the fact, employers may face a costly penalty.

There are two penalties under ACA’s Play or Pay rules that an employer must be aware of: Penalty A (the sledgehammer) and Penalty B (the tap hammer).

Penalty A is levied when an employer does not offer MEC, MV coverage to at least 95% of their FT and eligible VH employees. While the penalty is listed in the regulations as $2750 per year per employee (minus 30 of those FT/eligible VH employees), this fee is actually levied on a monthly “failure” basis. While an employer may have set their healthcare offering parameters to meet this threshold, with layoffs, leaves, and furloughs some months in 2020 might result in a surprise Penalty A payment required by the IRS. 

If an employer is not subject to Penalty A, they must then determine if they are subject to Penalty B, which is an employee-by-employee penalty. Any FT/eligible VH employee not offered MEC, MV coverage (those employees in that 5% leeway under Penalty A) would be included in this category. In addition, anyone offered MEC, MV coverage that was not affordable under the ACA rules may result in a penalty. Like Penalty A, Penalty B is denoted in the regulations as an annual penalty of $3860 but is levied monthly. The bar is quite high for Penalty B, though; any employee who should have been offered coverage and was not, or any employee who was offered unaffordable coverage, must have ALSO

1. waived the group plan
2. purchased individual coverage on the state’s marketplace, and
3. received a Federal subsidy to assist with the cost of the premiums. 

​An employee who waived coverage and enrolled on a spouse’s employer plan, a parent’s plan, another employer’s plan, Tricare, Medicare, or Medicaid won’t result in an employer being hit with a Penalty B charge. 

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​The Bottom Line
Unfortunately, COVID has created a minefield with regards to ACA Play or Pay penalties for large employers.  Without direction from the Federal government, employers did the best they could. Now they may be finding that their efforts will be met with penalties. It will remain to be seen if the IRS will provide any leniency. For now, employers need to ensure that they code each employee’s 2020 form correctly, which in itself is quite the task. And, while I rarely use this blog as a forum for a sales pitch, I would suggest that if your agency has any employers who had layoffs, terminations, leaves, furloughs, pay changes, benefit cost changes, or fall  into any of the “pitfall” categories above, you would be wise to hire a professional like The Benefits Academy to ensure forms are coded correctly. 

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