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Benefits Org Comments on Healthcare Reporting Requirements

FEB. 4, 2022

Benefits Org Comments on Healthcare Reporting Requirements

DATED FEB. 4, 2022
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February 4, 2022

Internal Revenue Service
Attn: CC:PA:LPD:PR (REG-109128-21)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

Re: Comments on Proposed Regulations Regarding Information Reporting of Health Insurance Coverage and Other Issues (REG-109128-21)

Dear Sir or Madam:

I write on behalf of the American Benefits Council (“the Council”) to provide comments in connection with the proposed regulations on Information Reporting of Health Insurance Coverage and Other Issues, issued by the U.S. Department of the Treasury (Treasury) and Internal Revenue Service (IRS). As discussed below, the Council supports and greatly appreciates the proposed changes and provides several related recommendations.

The Council is dedicated to protecting employer-sponsored benefit plans. The Council represents more major employers — over 220 of the world's largest corporations — than any other association that exclusively advocates on the full range of employee benefit issues. Members also include organizations supporting employers of all sizes. Collectively, Council members directly sponsor or support health and retirement plans covering virtually all Americans participating in employer-sponsored programs.

As you are aware, the Affordable Care Act (ACA) imposed substantial reporting requirements on employers. More specifically, Section 6055 of the Internal Revenue Code requires employers and other providers of minimum essential coverage to annually report to the IRS and furnish to individuals forms showing coverage for the year, primarily to enforce the individual mandate, the penalty for which was reduced to $0 beginning in 2019. Section 6056 of the Code requires applicable large employers annually to report to the IRS and to furnish to full-time employees forms showing whether coverage was offered and information about that coverage, to enforce the employer mandate.

Employers worked diligently to implement these requirements and employers have also worked hard to implement analogous state-level reporting requirements. Throughout this process, the Council has worked with Treasury and the IRS by raising issues, seeking clarifying guidance, and requesting relief where needed and appropriate.

We greatly appreciate all the efforts by Treasury and the IRS over the years on ACA reporting, including the relief that has been provided to date. As discussed below, we strongly support that the proposed regulations make some vital aspects of the relief permanent.

30-DAY FURNISHING EXTENSION

Under Code Sections 6055 and 6056, employers and other providers of minimum essential coverage must furnish statements of coverage, or statements regarding offers of coverage, as applicable, to employees by January 31 of the year following the year to which the statement relates. The current regulations implementing these Code sections allow the IRS to grant an extension of up to 30 days to furnish Forms 1095-B and 1095-C for good cause shown or to provide for automatic extensions.1

Every year since these requirements have been in effect, Treasury and the IRS have issued guidance providing an automatic extension of the furnishing due date, and for the last several years the extension has been for 30 days.2 This is because Treasury and the IRS have determined that a substantial number of employers, insurers and other reporting entities needed additional time beyond the January 31 due date and so, instead of handling requests for extensions on a one-off basis, Treasury and the IRS have issued an automatic extension, obviating the need for each individual employer and insurer from having to request a 30-day extension.

In Notice 2020-76, Treasury and the IRS requested comments as to whether there is a continued need for this relief and the Council provided an extensive comment outlining the need for the 30-day furnishing relief to be made permanent.3 In the proposed regulations, Treasury and the IRS proposed to make this relief permanent, acknowledging the many comments in support of this policy and the unique and time-consuming nature of the reporting requirements.

I write now to express our strong support for the permanent 30-day furnishing extension provided in the proposed regulations. As we provided in prior communications with Treasury and the IRS, we understand that in some instances the need for relief from new requirements dissipates with time, as familiarity with the requirements grows and processes for compliance are completed and fine-tuned. However, we understand from discussions with employers, this has not been the case with the ACA furnishing requirements. Rather, the reasons for a 30-day furnishing delay are permanent issues which merit a permanent delay, as reflected in the proposed regulations.

More specifically, the administrative process to produce complete and accurate Forms 1095-B and 1095-C takes more time than is allowed by the January 31 deadline, due to the complexity of the process and the importance of validating the data before it is sent to employees. Employers must gather accurate enrollment and offer information, oftentimes from multiple service providers and/or data systems, verify this information, and transmit it to their vendors with sufficient time to prepare and distribute the forms. The reporting requires information from multiple data sources for a great number of employees, which takes substantial time to process. While information is tracked all year, employers cannot meaningfully front load this work to earlier in the applicable year because the reporting must include data through the end of December. So, the data aggregation and verification process requires substantial work after the close of the applicable year.

Our understanding is that many employers have implemented robust data verification processes to ensure that the data being provided, which is often aggregated from several data streams, is accurate and complete, for employees and the IRS. Employers have found that the time they take to verify the data, before furnishing the forms to employees or providing them to the IRS, substantially reduces errors on the forms and the need to correct the forms. As such, we are concerned that, without a delay, employers would be forced to cut down on these very worthwhile data verification processes in order to meet the January 31 due date, which would be detrimental to employees, employers and the IRS.

In addition, as a practical matter, the burden of attempting to prepare these forms in early January is compounded by the fact that the end of December and beginning of January are also very busy times for employers because they have year-end amendments to make to their benefit plans and because they need to prepare Forms W-2 that are due to employees by January 31. More generally, we have heard that the extensive effort and time it takes to complete the Forms 1095-B and 1095-C is due to the fact that the forms are dependent on the assessment of detailed employer and employee activities and behavior. In some cases, a day-by-day, person-by-person assessment is required, which may yield varied individual results in the applicable codes. This is meaningfully distinguishable from other informational returns that accumulate dollar amounts for the year without regard to day-by-day activity during the year (like the Form W-2).

Further, as an example of timing challenges building on the Form W-2 context, employers intending to use the Form W-2 affordability safe harbor generally must finalize the Forms W-2 in order to reliably use the Box 1 wages to calculate whether the W-2 safe harbor is available for them to indicate on the Form 1095-C. This can result in not being able to determine the affordability safe harbor for the year until well into or towards the end of January each year. The dependencies inherent in the production of the Forms 1095-C often require the various data source timelines to run consecutively rather than concurrently, which result in frequent delivery delays beyond the January 31 deadline.

Taking all of this together, on an ongoing, permanent basis, employers need an extra 30 days to prepare the forms. Both the rationale, and authority, for a permanent 30-day extension are robust and we strongly urge Treasury and IRS to finalize this provision in the proposed regulations.

Moreover, we emphasize that a permanent 30-day extension will not negatively affect individuals. Because the individual mandate payment is $0, individuals do not need information on the Form 1095-B (or Part III of the Form 1095-C) regarding enrollment in coverage to compute their federal tax liability. And, while the information in Part II of the Form 1095-C is theoretically relevant to show an employee whether or not he/she had an offer of affordable, minimum value employer-sponsored coverage to determine premium tax credit eligibility, we understand that most employees for whom this would be relevant already know whether this is the case (i.e., because they applied for the advance payment of the premium tax credit during enrollment in Marketplace coverage) and many employees are not eligible for the premium tax credit in any event, by virtue of their income. Thus, practically speaking, employees do not use the Form 1095-C to help them complete their tax return. However, even if in a rare circumstance an employee wished to use the form to confirm his or her premium tax credit eligibility, he or she would still receive the form well before the April 15 due date of his or her tax return.

As a more technical matter, as part of providing a permanent 30-day furnishing extension, we note that Treasury and the IRS are proposing to remove the portion of the regulations which provides the IRS the ability to issue guidance providing an automatic extension of the time to furnish the forms. While we understand that the 30-day permanent extension obviates the need for the IRS to provide other automatic extensions in the vast majority of circumstances, recent events have taught us that it is possible that some unique, extenuating circumstances could arise in which the IRS would wish to provide a further, automatic extension. As such, we recommend that Treasury and the IRS consider maintaining this discretion, in order to respond to future crises if needed.

CODE SECTION 6055 FURNISHING RELIEF

In response to the fact that the individual mandate penalty was reduced to $0 effective in 2019, and the Form 1095-B (which shows which individuals have coverage sufficient to avoid an individual mandate penalty) is primarily used to enforce that provision, Treasury and the IRS previously provided relief from the requirement to furnish the Form 1095-B. This relief was incorporated in the proposed regulations and provides that an insurer can meet its furnishing obligation if it (1) provides clear and conspicuous notice, on its website, of the right to receive a copy of the statement, (2) retains the notice on the website through October 15 of the year in which the furnishing would be due, and (3) furnishes a statement to a requesting individual within 30 days of a request.

This relief would apply for any year in which the individual mandate penalty is $0. This relief is not available to large employers that file the Form 1095-C, even though that form also contains coverage information, except in the limited circumstance of reporting for individuals who are not an employee or who are not a full-time employee for any month of the year.

Most of our members sponsor self-insured health plans and, as a result, file the Form 1095-C. As such, the Form 1095-B furnishing relief is not relevant to them. Nonetheless, we note that the relief seems reasonable, and we recommend that Treasury and the IRS make it permanent as it provides an additional option for insurers that could reduce their administrative burden, with no downside for covered individuals. We also thank Treasury and the IRS for confirming that this relief is available for self-insured large employers that file the Form 1095-C not only for part-time employees but also non-employees (i.e., all individuals for whom the employer reports on a Form 1095-C using the Code 1G).

REPORTING OF DUPLICATIVE OR SUPPLEMENTAL COVERAGE

In the preamble to the proposed regulations, Treasury and the IRS renew a request for comments on proposed regulations issued in 2016, regarding certain aspects of reporting of health coverage under Code Section 6055 (the “2016 proposed regulations”). Among other issues, the 2016 proposed regulations provided an exception from reporting (both filing with the IRS and furnishing to the individual) under Code Section 6055 for duplicative or supplemental health coverage. The general idea was that, if the IRS and an individual would receive reporting showing that an individual had health coverage sufficient to avoid an individual mandate penalty (relevant at the time), there was no need for additional information reporting for that individual showing they had other supplemental or duplicative coverage.

More specifically, the 2016 proposed regulations provided that if an individual is covered for a month by more than one plan provided by the same reporting entity, reporting is required for only one of the plans (the “duplicative coverage exception”). For example, if an employer offers a self-insured major medical plan and a health reimbursement arrangement (HRA), only reporting of coverage by one of those plans is required. And reporting is not required for coverage of an individual for a month if that individual is eligible for that coverage only if enrolled in other coverage for which reporting under Code Section 6055 is required (the “supplemental coverage exception”). For example, reporting is not required for coverage if it is only offered to individuals who also have Medicare.

However, under the 2016 proposed regulations, the supplemental coverage exception only applies with respect to employer-sponsored coverage if the supplemental coverage is offered by the same employer that offers the employer-sponsored coverage for which reporting is required. This means that if an employer offers an HRA (to be reported by the employer) to supplement fully-insured coverage (to be reported by the insurer), the employer would still be required to report for the HRA, even if, in order to enroll in the HRA, the individual must have other coverage. This aspect of the 2016 proposed regulations also raised issues for HRAs for retirees, because their other coverage (i.e., Medicare) is not offered by the employer.

Not only is this extra requirement for employer-sponsored coverage unduly burdensome, its justification is not clear. The basis for the exception relates to the supplemental nature of the coverage, not the identity of the entity offering it. That is, if a type of coverage is only offered to those with other coverage, there is a strong basis for allowing an exception from reporting of the supplemental coverage because the reporting serves no purpose, while at the same time imposing a burden.4 This is true if the supplemental coverage is offered by the same employer and it is true if the supplemental coverage is offered by a different entity. As such, we ask that, in finalizing the 2016 proposed regulations, Treasury and the IRS reconsider this aspect of the rule, equalize the treatment for employer-sponsored coverage, and provide that the supplemental coverage exception applies regardless of the relationship of the entity that offers the supplemental coverage to the entity that offers the plan that it supplements.5

* * * * *

Thank you again for working with us over the years on ACA reporting implementation and for considering our comments. If you have any questions or would like to discuss these comments further, please contact us at (202) 289-6700.

Sincerely,

Katy Johnson
Senior Counsel, Health Policy
American Benefits Council
Washington, DC

FOOTNOTES

4To the extent that Treasury and the IRS are of the view that the reporting serves a purpose for some kinds of HRAs (and not others), we ask that Treasury and the IRS consider the different types of HRAs separately in developing the final rule. For example, even if there is desire by the IRS to receive information on individual coverage HRA coverage (related to verifying premium tax credit eligibility, for example) that same need may not apply with respect to other types of HRAs.

5We understand that the alternative method for furnishing provided in the proposed regulations will mean that, in some instances, automatic furnishing under Code Section 6055 is not required. However, that rule does not relate to filing with the IRS and it does not apply to large employers that offer self-insured coverage (with respect to their full-time employees) and so our request with regard to finalization of the 2016 proposed regulations remains.

END FOOTNOTES

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