The Affordable Care Act’s Reporting Requirements for Carriers and Employers (Part 14 of 24): Coding Form 1095-C, Part II for Mid-Month Hires, Re-Hires and Terminations
When reporting offers of coverage to full-time employees under the Affordable Care Act’s (ACA) employer shared responsibility rules, much of the detail appears in Part II of IRS Form 1095-C, Lines 14, 15 and 16. For the most part, the instructions to Forms 1095-C (and also Form 1094-C) are clear enough, but the decision by the regulators to also use Form 1095-C to both solicit information relating to compliance with the ACA’s individual responsibility rules and to collect information necessary to administer premium tax subsidies, has made the form more complicated than many had hoped or expected. This is particularly true in the case of reporting for employees with less than full months of coverage.
This post explains the rules that apply when reporting offers of coverage for mid-month hires, re-hires and terminations.
Mid-Month Hires
The instructions provide the following rule relating to mid-month hires:
“An employer offers health coverage for a month only if it offers health coverage that would provide coverage for every day of that calendar month.” (Emphasis added).
Even where an employee receives an offer of coverage on his or her first day of employment, the proper Line 14 indicator code for the month is 1H (no offer of coverage). The same is true if the effective date of coverage is deferred until the employee completes an otherwise permissible waiting period. The final regulations implementing the ACA’s employer shared responsibility rules do not penalize employers that otherwise make a timely offer of coverage mid-month, however. This is so irrespective of whether the offer of coverage is immediate or follows an otherwise permissible waiting period.
The ACA also added a separate rule limiting waiting periods to 90 days. The final regulations implementing the waiting period rules permit an orientation period of up to 30 days in addition to the 90-day waiting period. While this rule appears to be intended to permit the coordination of the 3-plus month delay under the employer shared responsibility rules with the waiting period rules, most employers appear to be adopting waiting periods of 90 days or less.
The final waiting period rules also adopt a rule for waiting periods that rely on cumulative hours of service. This latter rule generally allows employers to impose a cumulative hours of service requirement of up to 1,200 hours without violating the waiting period requirement. What has not been made entirely clear is whether compliance with the cumulative hours of service requirement avoids penalties under Code § 4980H for an employer who elects to determine an employee’s status under the monthly measurement method. For an excellent discussion of this question, please click here.
- Coverage offered to employees and dependents that is either unaffordable or fails to provide minimum value: monthly measurement method for new full-time employee under the look-back measurement method
Penalties associated with offers of coverage under the monthly measurement method, and in the case of new full-time employees under the look-back measurement method, are generally subject to a 3-plus month delay. Even where the coverage is unaffordable or fails to provide minimum value, no penalty is imposed under Code § 4980H(a) (generally considered the far more onerous penalty) for the three full calendar month period beginning with the first full calendar month of employment, provided that coverage is offered immediately thereafter. Where the offered coverage does not provide minimum value, Form 1095-C, Part II, Lines 15 and 16 will be left blank, indicating that the employer may be subject to penalties under Code § 4980H(b) during the first three full calendar months of employment. For the months preceding the month that includes the date of hire, the Line 16 series-2 indicator code would be 2A (employee not employed during the month). The subsequent extension of coverage, beginning with the first full month during which coverage is offered, will be reported on Form 1094-C, Part III, where the employer certifies whether it made an offer of coverage to a sufficiently large percentage of employees to avoid exposure to penalties under Code § 4980H(a). Once coverage is offered, the series-1 indicator code would switch to 1F (minimum essential coverage not providing minimum value).
- Coverage offered to employees and dependents that is either unaffordable or fails to provide minimum value: part-time, seasonal or variable hour employees under the look-back measurement method
Part-time, seasonal or variable hour employees are not treated as full-time employees for Code § 4980H purposes during their initial measurement periods. Where coverage is offered to substantially all full-time employees (70% in 2015, 95% in 2016 and later years), but where that coverage is either unaffordable or fails to provide minimum value (as we assume here), no penalty is imposed under Code § 4980H(a) during the initial measurement period and any associated administrative period, provided that coverage is offered immediately thereafter. Similar to the treatment under the monthly measurement method described above, if the offered coverage does not provide minimum value, Form 1095-C, Part II, Lines 15 and 16 will be left blank, indicating that the employer may be subject to penalties under Code § 4980H(b) during the first three full calendar months of employment. For the months preceding the month that includes the date of hire, the Line 16 series-2 indicator code would be 2A (employee not employed during the month). The timely extension of coverage will impact the response to Form 1094-C, Part III relating to whether the employer makes an offer of coverage to a sufficiently large percentage of employees to avoid exposure to penalties. Once coverage is offered, the series-1 indicator code would switch to 1F (minimum essential coverage not providing minimum value).
- Coverage offered to substantially all full-time employees that is both affordable and provides minimum value: monthly measurement method and look-back measurement method
The final Code § 4980H regulations provide that no liability for assessable payments is incurred during a “limited non-assessment period.” Where an applicable large employer elects to determine full-time employee status under the monthly measurement method, the limited non-assessment period is the three full calendar month period beginning with the first full calendar month of employment. In the case of an applicable large employer that elects to determine full-time employee status under the look-back measurement method there are two possibilities. For a new employee who is reasonably expected to be full-time, the limited non-assessment period extends to the first of the month following the employee’s initial three full calendar months of employment. For a new employee who is reasonably expected to be part-time, seasonal or temporary, the limited non-assessment period extends to the first of the month following the employee’s initial measurement period and any associated administrative period.
Where the offered coverage provides minimum value, and provided that coverage is timely offered thereafter, no penalties are imposed during the “4980H(b) limited non-assessment period” despite that the actual offer of coverage is delayed. (For a discussion of what constitutes a 4980H(b) limited non-assessment period, please see our previous post.) For the months preceding the month that includes the date of hire, the Line 16 series-2 indicator code would be 2A (employee not employed during the month). For the initial month of coverage, and during the balance of the 4980H(b) limited non-assessment period, the proper series-1 indicator code on Form 1095-C, Part II, Line 14 is 1H (no offer of coverage); Line 15 is left blank; and the proper series-2 indicator code on Line 16 is 2D (4980H(b) limited non-assessment period).
Once the 4980H(b) limited non-assessment period ends, Line 14 would report the appropriate offer of coverage indicator code (1A (qualifying offer), 1C (minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) (not spouse)) or 1E (minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse)). (Indicator code 1B (minimum essential coverage providing minimum value offered to employee only) may also be used in the case of an employee who qualifies for the dependent coverage transitional rule.) Line 15 would report the “employee share of the lowest cost monthly premium for self-only minimum value coverage.” And Line 16 would report the appropriate affordability safe harbor. These include 2F (W-2 safe harbor), 2G (federal poverty line safe harbor), and 2H (rate of pay safe harbor).
Where a new part-time, seasonal or variable hour hire is either not an employee or is under his or her initial measurement period (i.e., in a limited non-assessment period) for each month during the calendar year, then no Form 1095-C need be filed for the new hire for the year. To qualify for this treatment, the new hire and his or her dependent(s) must be eligible for an offer of health coverage no later than the end of the applicable waiting period or initial measurement period as the case may be.
Mid-Month Re-Hires
The treatment of re-hires depends on whether there has been a break-in-service for employer shared responsibility purposes. Under both the monthly measurement method and look-back measurement method, a full-time employee returning to a previous employer after a break in service of less than 13 consecutive weeks (or 26 weeks in the case of an educational institution) is treated as a “continuing employee” and not a new hire. A continuing employee being tested under the monthly measurement method, or a continuing employee in a stability period under the look-back measurement method, must generally be offered coverage as of the first day he or she is credited with an hour of service upon returning to work or as soon as administratively practicable thereafter. An offer of coverage made by the first day of the calendar month after returning to work is deemed to be made as soon as administratively practicable. An employee who is rehired following a break-in-service may be treated as a new hire.
If a continuing employee returns to work, without incurring a break-in-service, during a stability period with respect to which he or she previously qualified for (having been timely offered and declined) coverage, a special rule applies. If the employee previously declined the employer’s offer of coverage, the employer is treated as having offered coverage for the entire stability period. The employer is not required to make a new offer of coverage for the remainder of the stability period due to the employee's resumption of services.
While the rules governing continuing employees work fine in the case of an employee who is re-hired early in a calendar month, it’s less clear how to apply them in the case of a continuing employee who is re-hired, say, on the last day of the month. If, for example, an employer can make the offer of coverage available as of the end of the following week, and if the employee thereupon immediately re-enrolled, coverage would not be offered on each day of the month. So there would be no offer of coverage for the month, and the appropriate series-1 indicator code would be 1H (no offer of coverage). Provided the coverage is both affordable and provides minimum value, the proper series-2 indicator code is 2D (employee in a section 4980H(b) limited non-assessment period).
Mid-Month Terminations
Recall that, if an employee terminates coverage before the last day of the month, the employee is not treated as having an offer of coverage for that month. Where an employee terminates coverage before the last day of the month, the instructions are again helpful:
Enter code 2B also if the employee is a full-time employee for the month and whose offer of coverage (or coverage if the employee was enrolled) ended before the last day of the month solely because the employee terminated employment during the month (so that the offer of coverage or coverage would have continued if the employee had not terminated employment during the month).
Thus, in the month of termination, Form 1095-C, Line 14 would be coded 1H (no offer of coverage); Line 15 would be left blank; and Line 16 would be coded 2B (employee not a full-time employee). Mid-month terminations and reductions in hours also implicate COBRA, which will be the subject of our next post in the series.