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COBRA Conundrums
Employers: The 1095 Buck Stops with You, Even for COBRA
Employers: The 1095 Buck Stops with You, Even for COBRA

You’ve probably heard the phrase, “Too many cooks in the kitchen.” It means that efficiency and quality can decrease when too many people are involved in the same task. Completing a complex project requires clear definition of roles and an effective leader who is ultimately responsible for the outcome.

The past year presented a complex project for everyone involved with group health plans. Health care reform requires applicable large employers (ALEs) to track data on everyone covered under their health plans, maintain the data, properly input the data on appropriate forms and report that data to the IRS and to the covered individual. Some of the data required includes each employee’s name; Social Security Number; address; full-time or part-time status for each month; health coverage offered; and the monthly coverage elected. Very complex and very confusing.  

Administration of a typical group health plan involves many different players.  Pieces of the data needed for health care reform reporting may be housed with payroll, human resources, the insurance company or third party administrator, the COBRA administrator, the direct bill administrator, the employee and others. Difficulty arises in figuring out how to pull all of the data together to achieve reporting.  

The IRS recognized that having too many cooks in the kitchen may lead to fragmented and inefficient reporting. To combat this concern, the IRS mandated teamwork while at the same time requiring engaged and effective leadership.

Mandated teamwork: 12 months of data on one 1095 per employee

An employer must ensure that it provides only one Form 1095 to each employee. Thus, all required information relevant to the employee’s employment with an ALE for the 12-month period must be consolidated onto one form.

Consider the example of Dan. Dan works for an ALE that contracts with an outside COBRA administrator.  Dan was covered under the ALE plan as an active employee for nine months of the year.  His hours were then reduced and his plan coverage terminated. Dan elected COBRA for the remaining three months of the year. Dan’s employer holds the required information for the first nine months of the year. The COBRA administrator has the necessary information for the last three months. Without a transfer of data, the COBRA administrator cannot complete the Form 1095 for the first nine months and the ALE cannot complete the Form 1095 for the last three months. The law says the employee cannot receive two Form 1095s.

The solution mandates teamwork. All parties must work together to determine which direction data will flow and who will consolidate all of the data onto one Form 1095.

Required leadership: The employer is ultimately responsible

Applicable large employers can contract with third party providers to gather the necessary data, consolidate the data, complete the forms and transmit them to the IRS and to individuals. Applicable large employers cannot contract away the ultimate responsibility for reporting.  

Specifically, the IRS says:

May an employer hire a third party administrator or other third party service provider to file the return with the IRS and furnish the statements to employees required under section 6056?

Yes.  Reporting arrangements between ALE members, issuers, and other parties are not prohibited. However, entering into a reporting arrangement does not transfer the ALE member’s potential liability under section 4980H and (except in the case of a related entity properly designated by a governmental unit) does not transfer the potential liability for failure of the ALE member to file returns and furnish statements under section 6056.  If a person who prepares returns or statements required under section 6056 is a tax return preparer, that person will be subject to the requirements generally applicable to tax return preparers.   Questions and Answers on Information Reporting by Health Coverage Providers (Section 6056), Q/A-28. 

Back to the buck

What does all this mean? The bottom line is that employers must understand and comply with the Affordable Care Act reporting requirements. As the appointed leader, employers must know the source and location of all necessary data and make a plan to consolidate the data. If employers try to pass the buck, it could cost them many bucks for failure to comply.

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