By Christy Abend
While the Affordable Care Act (ACA) is a federal law, various states have implemented their own individual healthcare mandates as well. It’s not easy for human resource professionals to stay on top of ACA and state level reporting requirements – it’s complicated and time consuming. And, if your company has locations or employees in multiple states, that only increases the complexity.
On January 1, 2019, Congress eliminated the individual mandate penalty of the ACA at the federal level. While the federal law changed and no longer required individuals to pay a tax penalty for failure to enroll in health coverage, it was during this time that several states enacted their own state-based individual health coverage mandates. Employers are required to adhere to each state-based mandate where their employees reside, or in some cases, where they physically work.. Not adhering to this rule can lead to potentially costly errors and misconceptions, so it’s vital that organizations not only stay current, but stay ahead of updates and requirements.
For example, a federal judge in Texas ruled in September 2022 that employers are not required to cover medication preventing HIV infection. The ruling was against the ACA’s Minimum Essential Coverage rule requiring coverage of preventive care. While the judge in this case has not determined as yet how this ruling will be enforced, it could potentially set a precedent for further dismantling of the minimum essential coverage rule. A variety of states may create laws to protect preventive coverage within their state borders, similar to how state individual mandates were created. If this is the case, benefits administration could become even more complex for employers.
Typically, states have a different definition of who is considered a resident and/or who needs to be reported for purposes of their state individual mandates. Additionally, states can have their own unique reporting deadlines, acceptable data formats and methods for submitting data. This makes managing the reporting of health coverage offers even more fragmented and complex.
When employers operate across multiple states that require state individual mandate reporting, not only must they report on offers of health care coverage to the Internal Revenue Service (IRS) using Forms 1095 and 1094, they must also report this information to the various state reporting entities.
As of October 2022, the states with their own mandates include California, Massachusetts, New Jersey, Rhode Island, Vermont and Washington, D.C. States considering individual mandates for the future include Connecticut, Hawaii, Maryland, Minnesota and Washington. Here’s a look at the current mandates:
California is the largest state with an individual mandate. There is an individual penalty that follows the model of the federal mandate assessed on residents for not having insurance coverage. Additionally, the legislation allows for many low-income residents of California to receive a subsidy to help pay health insurance premiums. Residents may apply for exemptions for a variety of reasons.
California’s definition of “minimal essential coverage,” necessary to meet requirements and avoid penalties, is the same as the federal requirement.
ACA reporting Forms 1095-C must be distributed by employers to California residents by January 31, 2023. Employers must also file these forms to the state of California by May 31, 2023.
California affirms that certain parts of 1094-C are not required, specifically Parts II, III and IV, however the same Federal form 1094-C that is submitted to the IRS may also be submitted to California.
NOTE: California’s mandate carries a penalty for employers who fall out of compliance equal to $50 per covered individual not reported to the state. Employer reporting requirements apply when covered individuals reside in California. The state requires employers to file on behalf of self-insured, full-time, and part-time enrollees along with covered dependents. There is no penalty for late furnishment of forms to covered individuals.
The Massachusetts mandate was implemented in 2006 and served as a model for the ACA in its formation.
The Massachusetts penalty applies only to adults, has affordability exemptions dependent on income, and exceptions from minimum creditable coverage (MCC) are allowed for certain designated plans. The MCC is separate from the federal minimum essential coverage (MEC) requirement.
To maintain state requirements in Massachusetts, all applicable adults must be enrolled in a plan that meets minimum requirements regardless of the source of the coverage. The plan must also provide some level of coverage for services including emergency, prescription drugs, mental health, maternity and newborn care, and more.
Massachusetts considers 15 or more days of coverage a month for reporting on the MA 1099-HC, and the form must be delivered to employees by January 31, 2023, and filed with the MA Department of Revenue by March 31, 2023.
NOTE: The penalty in Massachusetts is $50 per individual with an annual maximum of $50,000 for failure to issue MA 1099-HC. State law requires every employer in Massachusetts with six or more employees to annually submit a MA Health Insurance Responsibility Disclosure (HIRD) form. The opportunity to submit HIRD forms is between November 15 and December 15 each year.
New Jersey implemented its individual mandate in 2019 with legislation that also includes a penalty that follows the ACA’s model – assigning fines based on household income, not to exceed the average cost of a bronze plan in the state. Penalty revenue collected is allocated to a reinsurance fund to provide payments back to insurers to lower overall healthcare costs.
Employers who utilize Forms 1095-B and 1095-C to report coverage under the federal ACA can use the same forms to report coverage for New Jersey’s state-based individual mandate. New Jersey requires reporting for self-funded and fully insured populations. Employers typically file on behalf of self-funded groups for New Jersey.
Employee delivery of Form 1095 is due by March 2, 2023. However, only employers with self-insured plans are required to submit Forms 1095-C and 1094-C to the New Jersey Division of Taxation by March 31, 2023.
NOTE: Employers who fail to meet the reporting requirements in New Jersey, may be assessed a penalty of $50 per form not reported to the state with a maximum penalty of $50,000.
Rhode Island initiated its state individual mandate in 2020 with a two-pronged approach: the actual individual mandate and a reinsurance program. Rhode Island’s mandate still includes an individual penalty for not having coverage and the revenue collected from these penalties is utilized to fund the reinsurance program to help keep healthcare affordable.
Employee delivery of Form 1095 is due by March 2, 2023, and state filing of the form to the Rhode Island Division of Taxation is due March 31, 2023. Employer reporting requirements apply when employees reside in Rhode Island.
The individual mandate in Vermont carries no associated individual penalty. Vermont does not currently require employer reporting, as long as federal reporting requirements remain.
The District’s measure carries an individual penalty assessed on residents of D.C. for non-compliance equal to the federal penalty defined in Section 5000A of IRC 1986.
Employers providing health coverage to residents or individuals that work in D.C. are required to submit Forms 1094 and 1095-B and C by May 1, 2023, to the D.C. office of Tax and Revenue (OTR). Employers must also provide applicable D.C. residents with written statements of their coverage. This requirement can be considered satisfied if the employer is already providing, through Federal requirements, individuals with a Form 1095-B or 1095-C by March 2, 2023.
If a company is headquartered outside of the United States, but has operations within the U.S., Federal ACA obligations remain the same. Where the business operates is largely irrelevant. Where employees reside and, in some cases – such as the District of Columbia – where they work, dictates who must be reported to each state.
Employers who have a remote workforce even within the United States have a particularly unique challenge in ensuring they have accurate residential home address information on file for remote employees as this is typically the determining factor on who needs to be reported on.
When states can make changes to ACA requirements with little to no notice or communication to employer groups, it can feel nearly impossible to keep informed, stay ahead, and avoid penalties. It’s important to find an ACA solution that offers individual state mandate reporting and has the expertise to understand and address changes in the regulations, the willingness to invest in technology that supports state changes, and has relationships within state governments to learn about upcoming changes and expectations.
Providing input and insights to states as they build out and amend their individual mandate reporting requirements
Continually monitoring for changes and investing in technology to address changes as they happen
Offering deep expertise on state rules and regulations
Working with you to help you not only meet your individual mandate requirements, but also privacy laws
Supporting you with personalized service and support
Learn more by downloading our ebook, Six Misconceptions Employers Have Around State-Based Reporting. Unfortunately for some companies, big decisions are made based on information that includes misconceptions. There are several falsehoods surrounding your state individual health insurance mandate reporting requirements, but some of the most common misconceptions are outlined in this ebook.
When your organization needs a better way to manage the complexities of healthcare reform, we’re here to help. Learn how we can help you solve your ACA management challenges.
The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.