The types of insurance that generally meet the standard of minimum essential coverage include:
- Any employer-sponsored group health plan, whether insured
or self-insured — including retiree plans and COBRA
- Coverage under certain government programs, such as Medicare, Medicaid, the Children’s Health Insurance Program (or CHIP)
- Coverage in the individual health insurance marketplace
- Other coverage recognized by the Department of Health and Human Services, including self-funded student health coverage and coverage under Medicare Advantage plans
- Not included are fixed indemnity coverage, life insurance,
and dental or vision coverage
A second type of penalty may be triggered if you offer minimum essential coverage, as described, but the coverage wasn’t affordable or didn’t provide minimum value — resulting in at least one full-time employee receiving a premium tax credit.
Most broad-based medical plans meet the legal parameters for minimum
value, where the plan pays for at least 60 percent of covered benefits. Regarding affordability, the premium for the lowest cost, self-only minimum value coverage should cost no more than 9.5 percent of an employee’s gross household income — rising to 9.66% of household income in 2016.
You can use three safe harbor tests to determine if the coverage you’re providing is affordable. I won’t cover them fully right now but just so you’re aware, they are the
1: W-2 safe harbor, 2: Federal poverty level safe harbor and 3: Rate of pay safe harbor. These are captured in Line 16.
Quick Tip: If one code applies for the entire
12 months, you only need to enter it once in the “All 12 Months” column.
Pointers for Line 15 on the 1095-C
On Line 15, you’re reporting the lowest-cost monthly premium for employee-only coverage. This is not necessarily the amount the employee paid, but the lowest-cost option. This helps the IRS determine if affordable coverage was
made available to the employee.
You’ll only fill out this section if you entered code 1B, 1C, 1D or 1E on line 14 — either in the “All 12 Months” box or in any of the monthly boxes. To repeat, indicate an amount here only if you used codes 1B, 1C, 1D or 1E on line 14.
Include cents with this figure and don’t round numbers
Also, if you entered 1A on Line 14, nothing needs to be entered here — or on Line 16. Code 1A indicates you made a qualified offer and, in turn, don’t need a safe harbor or other relief.
Pointers for Line 16 on the 1095-C
Line 16 — which involves nine codes again — clarifies issues such as whether an individual was employed during the month, whether the employee was eligible and/or enrolled in coverage, if the employee was in a waiting period or other limited non-assessment period and if any affordability safe harbors apply.
For most employees, the code you’ll use is 2C — employee enrolled in coverage offered.
Otherwise, the reasons for no coverage are:
2A — Employee not employed during month
2B — Employee isn’t a full-time employee
2D — Limited non-assessment period
The affordability safe harbors, which I mentioned a minute ago, fall under codes:
2F — W-2 safe harbor
2G — Federal poverty line safe harbor
2H — Rate of pay safe harbor
That leaves 2E, a code used for multi-employer interim rule relief, and 2I for non-calendar year transition relief.
In a nutshell, you’re giving the IRS a reason why you shouldn’t be penalized under the Employer Shared Responsibility provision — largely due to a transition rule or safe harbor. That being said, keep in mind that a blank in this section is a red flag — and should be avoided! It can be a sign that you didn’t provide coverage — or the coverage wasn’t affordable — both of which could lead to a penalty
Part 3 for Self-Insured Employers
Just to clarify … part 3 only applies if you provide self-funded coverage. This is where you enter information about covered individuals, including employees, dependents and spouses, as well as retirees and COBRA recipients. You’ll need Social Security numbers or, if these numbers aren’t available, date of birth. Again, this information isn’t completed by insured employers because it’s captured separately, by the health insurance providers themselves, through the 1095-B.