Small Business

The I.R.S.’s final mandate reporting rules? Still complicated

Robb Mandelbaum, The New York Times
A man enrolls in a health insurance plan under the Affordable Care Act in Miami.
Getty Images

Last summer, the Obama administration delayed implementing the employer mandate in the Affordable Care Act because, it said, it needed time to figure out how it might simplify the law's complicated reporting requirements for businesses with 50 or more employees. "We don't necessarily need to load up the vast majority of companies that are already doing the right thing with a bunch of additional paperwork," President Obama told The Times in an interview in July, asking, "Are there simpler ways for us to allow them to certify that they're providing health insurance?"

But the final regulations were released last week, and business groups are complaining that the only streamlining the Internal Revenue Service appears to have achieved is for itself.

"A lot of the provisions here for precertification and managing reporting requirements, particularly for very large employers, are really not very helpful," said Neil Trautwein, employee benefits policy counsel at the National Retail Federation. "And I think it's really cast more to meet the needs of the cash-strapped I.R.S. and their clunky computer systems."

The regulations at issue implement two new sections of the tax code created by the Affordable Care Act. Section 6056 helps the I.R.S. enforce the mandate on so-called "applicable large employers" — those with 50 or more employees — to provide full-time workers with health insurance that meets the law's standards for quality and affordability. It will also help the agency determine whether employees who use tax credits to buy their own insurance on the new state exchanges are entitled to a subsidy. A company pays a penalty when a full-time employee buys individual insurance with a subsidy.

Another new section of the code, Section 6055, is meant to help the I.R.S. make sure that individuals comply with their new obligation to have insurance. Under Section 6055, insurance providers are required to share the names of individuals enrolled in health plans throughout the year with the I.R.S. and also provide the same information to each household. Companies that self-fund their insurance plans also bear this burden of notification.

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Some business groups said that collecting the Social Security numbers of an employee's dependents, as the rules require, raised privacy concerns. "We have never collected dependent Social Security numbers, and we think there are other ways they could do it," said Michelle Neblett, director for labor and work-force policy at the National Restaurant Association. "But because of the way the I.R.S. system is set up, they say they need tax ID numbers."

The bulk of employer reservations involve Section 6056. For each full-time employee, the law specifies that a company subject to the mandate must report, among many other details, whether the employee was offered insurance for each month of the year, the cost to the employee of the least expensive insurance option in each month, and the months in which the employee was covered by insurance. The law requires monthly reporting because the company must offer insurance in each month of the year in order to avoid the penalty and because the tax credits are available to individuals on a month-by-month basis.

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In its final rule, the I.R.S. created an exception to the reporting requirements for companies that offer compliant insurance policies that are so inexpensive that no employee could find them unaffordable under the law. The Affordable Care Act deems health insurance unaffordable when the worker's share of the premium cost exceeds 9.5 percent of his or her household income. The reporting regulations set the ceiling for the employee's cost of a universally affordable health plan at 9.5 percent of the federal poverty level.

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For employees who work the full year, the employer can indicate in a single box that the employee received an offer of coverage. For other employees, the company would use codes to show whether an employee was offered coverage in each month. In either case, the employer would not have to report the cost of coverage. The agency also decided to combine the separate forms required by the new sections into a single document so companies would not have to file two forms for each employee.

Business groups said this effort at streamlining would help few companies. "It's hard to qualify for the en masse reporting," Mr. Trautwein said. "From what my members are telling me, just figuring out who can be included in that report, who can't be included in that report, is a headache."

Ms. Neblett, of the restaurant association, said that her member businesses could not sustain offering insurance so cheaply to workers. In 2015, a qualifying plan can cost an employee no more than $92 a month. "The employer is going to be paying a very high percentage of the premium each month," she said, "which in our business, that operates on thin margins, is a concern."

An official at the Treasury Department, who insisted on anonymity, said that an earlier rule making it easier for employers to comply with the mandate left the agency with less flexibility for the reporting requirements. The original rule gave employers a shortcut to determining whether the insurance they offered was affordable; instead of basing it on a worker's household income, which an employer is unlikely to know, an employer can set the offer at 9.5 percent of the employee's wages. If it turns out that the offer exceeds 9.5 percent of household income — because, say, the employee pays alimony — the worker can turn down the offer, but the company is off the hook for the penalty.

"That was a very beloved rule that we were very careful to provide," the official said. But, the official added, "a lot of people have household income smaller than their wages," and they are entitled to buy insurance subsidized with a monthly tax credit. "We were trying to figure out what's the least amount of reporting that's necessary under the statute in order for the statute to work reasonably for individuals, employers, and the tax system," the official said.

"I think they did the best they absolutely could given the confines they were working under," said Seth Perretta, an attorney from the Washington firm Crowell & Moring, who has represented several trade groups in the rule making. "When you realize you need all the individual data elements in order to enforce the individual mandate and the employer mandate, then there isn't a lot of flexibility you can give in terms of content."

The I.R.S. had floated several proposals that would allow companies to avoid reporting on individual employees, or to avoid collecting monthly data. One idea under consideration would have allowed a company to certify that it offered all of its employees affordable health insurance. If some employees wound up buying subsidized individual insurance, then the I.R.S. could notify the company, which would file detailed information returns only for those employees.

In the end, however, the agency concluded that none of the alternatives were workable. "From the I.R.S.'s perspective, they need to worry about the exceptions," said Pete Isberg, president of the National Payroll and Reporting Consortium, a trade group for payroll processing companies. In the case of a general certification, for instance, "you still have one, 2, 3, or 4 percent of employees who just didn't fit that for four months, and that's what the I.R.S. had to administer. And for four million workers, that's just not feasible."

Mr. Isberg said that had the business lobby gotten its way, companies, too, would soon sour on this sort of retrospective reporting. "They're going to have to go back to their time-keeping records from two years ago," he said, "and if you aren't keeping track of it in the first place, that's probably going to be a whole lot harder to do."

The New York Times