How do employers report the cost of coverage for terminated employees?

If an employee terminates employment prior to the end of the year, the employer may use any reasonable method of reporting the cost of coverage, provided that method is used for all employees in the plan. If a terminated employee requests a W-2 prior to the end of the calendar year in which they were terminated, the employer does not have to report the cost of coverage on that employee's W-2, and does not need to issue a separate W-2 solely for purposes of satisfying the PPACA W-2 reporting requirement.

How do employers report the cost of coverage for retirees and other former employees?

According to Notice 2012-9, coverage amounts do not need to be reported if a former employee receives health benefits but would not receive a Form W-2 except for the reporting requirement. In other words, if a retiree or former employee that is receiving health benefits (such as COBRA or retiree benefits) does not receive any compensation from the employer that would require a Form W-2, then the employer does not need to issue a Form W-2 to the retiree or former employee.

How does a change in coverage or cost of coverage during the plan year affect the employer's reporting obligations?

. If an employee enrolls in, terminates or changes coverage during the year, the amount reported on Form W-2 must take that change into account. This includes moving from one coverage tier to another. For changes during a period (such as in the middle of a month), Notice 2012-9 provides that employers may use any reasonable method to determine the reportable cost for that period, so long as the employer uses the same method for all employees it covers under the plan. Reasonable methods would include prorating or averaging the reportable costs for the month, or using the reportable cost at the beginning or end of the month. The employer must also take into account a change in coverage or cost in coverage during the course of a plan year and report coverage accordingly.

Further, Notice 2012-9 contains new guidance providing that the aggregate reportable cost for a calendar year may be based on information available to the employer as of Dec. 31 of that year, without regard to any election or notification made after that date that retroactively affects coverage. Therefore, any election or notification that is made or provided in the subsequent calendar year that has a retroactive effect on coverage in the earlier year is not required to be included in the calculation of the aggregate reportable cost for the calendar year. In practice, this means that if an employee were to make a change of status election in January 2013, affecting the cost of coverage in 2012, the changes in the cost of coverage would not need to be reflected in the aggregate reportable cost for 2012. Additionally, Notice 2012-9 provides that an employer is not required to furnish a Form W-2 if a Form W-2 has already been provided for a calendar year before the election or notification.

How does a non-calendar-year plan determine the reportable cost of coverage?

The reportable cost must be determined on a calendar-year basis. Thus, the employer cannot use a non-calendar 12-month determination period for purposes of calculating the applicable COBRA premium under the plan when calculating the cost of coverage. Instead, the employer must apply rules similar to the rules for calculating the cost of coverage when an employee has a change in coverage during the year.

Where a coverage period extends beyond Dec. 31 of a reporting year, the employer has the option to:

  • Treat the coverage as provided under the calendar year that includes Dec. 31;
  • Treat the coverage as provided during the calendar year immediately subsequent to the calendar year that includes Dec. 31; or
  • Allocate the cost of coverage for the coverage period between each of the two calendar years under any reasonable allocation method, which generally should relate to the number of days in the period of coverage that fall within each of the two calendar years.

Whichever method the employer decides to use must be applied consistently to all employees.

May the SBC be provided electronically?

An SBC may be provided in paper form or electronically as long as the requirements of the DOL's electronic disclosure safe harbor are met.

Are we required to only provide the SBC for the coverage tier the employee is currently enrolled under? Or do we have to provide an SBC for every tier to the employee?

For open enrollment/renewal purposes, if the plan offers multiple benefit packages, then the regulations said that the plan only needs to automatically provide the SBC that applies to the benefit package that the participant is enrolled in, and it is not required to automatically provide the SBC for other benefit packages in which the participant is eligible, but not enrolled. However, the participant may request an SBC and in that case, would need to be provided with the SBC within seven business days following the request.

This answer changes in cases where the participant is going through initial enrollment, because in that case they must be provided the SBC for each benefit package for which they are eligible.

Where can I find Insurance Resources and Forms?