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Coding COBRA Coverage on the Form 1095-C – Confusion and Contradictions | Healthcare Attorneys

Coding COBRA Coverage on the Form 1095-C – Confusion and Contradictions

By now all applicable large employers should have begun, if not finished, the process of completing the Form 1095-C. As discussed in previous articles the most challenging parts of the Form 1095-C to complete are lines 14, 15, and 16. This statement is most evident when handling COBRA rights. This article will discuss some of the more confusing COBRA scenarios. However, many more COBRA scenarios are possible that raise similar coding issues and confusion.

One common COBRA scenario occurs when an employee gains COBRA rights in the middle of the year. The final regulations for section 6056 upon which the Form 1095-C is based do not mention COBRA coverage. Similarly, the final regulations for section 6055 upon which the Form 1095-B is based or the instructions to the Form 1095-B which could both be relevant for interpreting the rules for self-insured plans do not mention COBRA coverage. Therefore, one is left to interpret the instructions to the Form 1095-C for coding COBRA coverage on line 14, 15, and 16.

The Form 1095-C instructions are clear that an individual who receives his/her COBRA rights because of a termination in service is treated differently than an individual who receives his/her COBRA rights and is still an active employee such as an employee who is no longer eligible for coverage because of a reduction in hours. First, a former employee who receives his/her COBRA rights upon a termination of employment should not be reported as having been offered coverage on line 14. Instead, an employee who receives COBRA rights upon a termination of employment in the middle of the year should be coded using code 1H for line 14, leaving line 15 blank, and inserting code 2A for line 16 for any month for which the offer of COBRA coverage applies. This is also how a terminated employee would be coded if he/she had no COBRA rights.

An active employee who receives COBRA rights is reported in the same manner and using the same code as an offer of that type of coverage to any other active employee. Consequently, assuming the employer is not using code 1A for line 14, the employee will likely have his/her line 14 stay consistent even after the qualifying event. The reason code 1A would change is COBRA coverage is almost certainly going to be more expensive than the federal poverty line affordability safe harbor. Therefore, if an employee’s Form 1095-C has 1A entered on line 14 before the COBRA qualifying event, that employee’s line 14 code would change to code 1E. In this scenario it appears either code 2B or code 2C could be the correct entry for line 16 depending on whether the employee accepts or rejects the COBRA offer.

An issue an employer who sponsors a self-insured plan also has to be aware of is the possibility of offering coverage to a non-employee. This can occur in the context of COBRA coverage. Part III of the Form 1095-C states “This part may be completed by an employer offering self-insured health coverage for any other individual who enrolled in the coverage under the plan for one or more calendar months of the year, but was not an employee for any calendar month of the year, such as…a terminated employee receiving COBRA continuation coverage who terminated employment during the previous year, and a non-employee COBRA beneficiary…” The instructions go on to state that if an individual meets the qualification of the statement above, the individual’s line 14 should be completed using code 1G.

The code 1G statement made in part III of the instructions contradicts the statement made in part II of the instructions that code 1H should be entered for any month for which an offer of COBRA coverage applies as a result of a terminated employee. However, it is best to assume code 1G trumps code 1H in the scenario discussed next.

Again, the instructions are discussing two separate COBRA scenarios in the statement quoted above. In the first scenario an employee’s termination of coverage caused a qualifying event to occur in the 2014 calendar year. The employee elected to stay on the COBRA coverage for all or a portion of the 2015 calendar year. The instructions state in this scenario code 1G should be entered on line 14 if the self-insured employer elects to report coverage on the Form 1095-C instead of the Form 1095-B. As a result of line 14 being completed with code 1G, line 15 will be left blank. The code to be entered on line 16 requires a close examination.

The instructions to the Form 1095-C describe code 2C using the following three sentences “Enter code 2C for any month in which the employee enrolled in health coverage offered by the employer for each day of the month, regardless of whether any other code in Code Series 2 (other than code 2E) might also apply (for example, the code for a section 4980H affordability safe harbor). Do not enter 2C in line 16 if code 1G is entered in the All 12 Months Box in line 14 because the employee was not a full-time employee for any months of the calendar year. Do not enter code 2C in line 16 for any month in which a terminated employee is enrolled in COBRA continuation coverage (enter code 2A).”

After reading the first sentence in the passage above it appears that code 2C should be inserted in the scenario of a previous year qualifying event as code 2C trumps all other Code Series 2 codes that may apply other than code 2E. However, the second sentence calls into question this conclusion. The second sentence instructs an employer to not enter code 2C if an employee’s Form 1095-C has 1G for all 12 months in the 2015 calendar year. This scenario is certainly possible if a terminated former employee elects COBRA coverage for all 12 months of the 2015 calendar year. If the second sentence calls into question the first sentence, the third sentence clearly contradicts the first sentence. The third sentence instructs an employer to enter code 2A for a month in which a terminated employee is enrolled in the employer’s offer of COBRA continuation coverage. Therefore, there is one scenario when code 2A trumps code 2C. As confusing as these three sentences are as it relates to a terminated employee who receives COBRA rights in 2014 and elects to stay on the COBRA coverage for all or a portion of the 2015 calendar year, code 2A is the most appropriate code to insert on line 16.

The second scenario for a self-insured employer could be seen if a divorce occurs between a spouse and a covered employee. Again, the instructions make it clear in this scenario code 1G should be entered on line 14. As a result of line 14 being completed with code 1G, line 15 will be left blank. Since the ex-spouse is likely not an employee of the employer for any month of the calendar year, code 2A would likely be the appropriate code for line 16. However, it is fair to question whether code 2C is the appropriate code if code 1G is not entered for all 12 months of the year.

There is a third way an employee could have COBRA coverage that is not discussed in the part III instructions. This scenario would occur for an active employee. If an employee receives COBRA rights in 2014 as a result of a reduction in hours and elects COBRA coverage for the 2015 calendar year, the coding will be different to the part-time active employee scenario discussed previously in this article. Similar to the scenarios above, line 14 will be completed using code 1G and line 15 will be left blank. However, code 2A will not be the appropriate code for an employee who is still a part-time employee. Similarly, the second sentence of the code 2C description could eliminate the code 2C option as it states “Do not enter 2C in line 16 if code 1G is entered in the All 12 Months Box in line 14 because the employee was not a full-time employee for any months of the calendar year.” The other Code Series 2 options also would not work. Therefore, in this scenario line 16 should be left blank. Yes, this is very bizarre but the good news is the code combination of 1G on line 14 and “leave blank” on line 16 will not trigger a section 4980H(b) penalty.

The coding of the Form 1095-C for COBRA rights is extremely complicated. Several oddities exist and an employer is left with too many coding combinations for the various COBRA scenarios. Perhaps the best solution would be a line 14 code specifically for COBRA rights and leaving line 16 blank. Hopefully, the government can clear up all of the COBRA rights issues for the 2016 Forms.


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