QUESTION: We are an applicable large employer (ALE). For 2020, we offered coverage under our self-insured health plan to our salaried employees. We offered our hourly employees coverage under an individual coverage HRA (ICHRA). How do we report the ICHRA coverage on Forms 1094-C and 1095-C?
ANSWER: Employers were able to offer ICHRA coverage to employees starting January 1, 2020 (see our Checkpoint article). Because ICHRA coverage is considered minimum essential coverage (MEC) under an eligible employer-sponsored plan, the offer of coverage triggers reporting obligations for ALEs (see our Checkpoint article).
The instructions for Forms 1094-C and 1095-C confirm that an offer of ICHRA coverage to a full-time employee counts toward the 95% threshold to avoid an employer shared responsibility penalty under Code § 4980H(a), regardless of whether the ICHRA coverage is considered affordable. This conclusion affects reporting on Form 1094-C, Part III, column (a), where you will indicate whether you offered MEC to enough full-time employees to avoid the Code § 4980H(a) penalty.
An offer of ICHRA coverage will also be reported on Form 1095-C for all employees receiving the ICHRA offer, but the details will depend on several variables. Keep in mind that the primary purpose of Form 1095-C reporting is to determine whether you offered a full-time employee affordable employer-sponsored coverage that provides minimum value. This offer allows you to avoid a Code § 4908H(b) penalty with respect to employees receiving the offer.
Affordability is based on the employee’s required contribution for ICHRA coverage. This amount is the excess of the monthly premium for the lowest-cost silver plan offered through an Exchange for the employee’s age and location over the monthly ICHRA coverage amount (generally, the annual coverage amount divided by 12). The employee’s applicable location generally is the employee’s residence, but a safe harbor allows use of the employee’s primary employment site. (A separate safe harbor allows the employer to use the premium for a “look-back month.” Use of this safe harbor is not reported on Form 1095-C, but it likely will affect the amount of the employee’s required contribution.) If ICHRA coverage is considered affordable, then it is also deemed to provide minimum value. You will need to report the following information on Form 1095-C:
Age. You must report the age as of January 1, 2020, for all employees who received an ICHRA offer, regardless of whether they were full-time employees or the ICHRA coverage was affordable. The instructions caution that you may need to use a different age to determine the employee’s required contribution if (1) the ICHRA uses a non-calendar-year plan year; or (2) the employee became eligible for the ICHRA on a date other than January 1, 2020.
Terms of offer. If the ICHRA coverage offer was made to a full-time employee, you will use specific codes to indicate (1) whether the ICHRA coverage was considered affordable; (2) whether affordability was based on the ZIP code for the employee’s primary residence or primary site of employment; and (3) whether the offer was extended to the employee only or included the employee’s spouse and dependents. Separate codes are used to indicate that you made an unaffordable ICHRA coverage offer to a full-time employee, or that you made an ICHRA coverage offer to a part-time employee.
ZIP code. You must report the ZIP code for the employee’s applicable location, which will be either the employee’s primary residence or, if you use the safe harbor, the employee’s primary site of employment.
Employee’s required contribution. As noted above, this amount will be based on the premium for the applicable lowest-cost silver plan and your monthly ICHRA contribution on behalf of the employee.
Affordability safe harbor. You may use any of the generally applicable affordability safe harbors (Form W-2, rate of pay, and federal poverty line) to determine the affordability of ICHRA coverage offers.
As an employer sponsoring an ICHRA, you have a separate obligation as a provider of MEC to report monthly enrollment of all ICHRA-covered individuals (including full-time and part-time employees and their covered family members). This obligation applies irrespective of your status as an ALE, but you still will report this information on Part III of Form 1095-C.
Because ICHRA reporting is complicated, you should review the instructions and regulations carefully before completing the forms. As a reminder, Form 1095-C generally must be furnished to employees by March 2, 2021, and generally must be filed with the IRS by February 28, 2021 (for paper filings), or March 31, 2021 (for electronic filings) (see our Checkpoint article).
For more information, see EBIA’s Form 1094/1095 Workbook at Sections VII (“Form 1094-C: Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns”) and VIII (“Form 1095-C Report/Employee Statement: Employer-Provided Health Insurance Offer and Coverage”). See also EBIA’s Health Care Reform manual at Section XXXVI.D (“Information Reporting of Employer-Sponsored Coverage (Applicable Large Employers)”) and EBIA’s Consumer-Driven Health Care manual at Section XXVIII.B (“Individual Coverage HRAs (ICHRAs)”). You may also be interested in our webinar “1094/1095 Reporting for 2020” (recorded on 12/10/2020).
Contributing Editors: EBIA Staff.