Ask the Experts - February 2026
Our team will discuss the latest trends and topics in the world of employee benefits and compliance.
In this episode, we will discuss:
1095’s to Employees
Enhanced Subsidies Expiration
Becoming an ALE
Penalty Letters
March 31 Electronic Filing Deadline
RxDC
Podcast: Ask the Experts February 2026
Welcome to Ask the Experts, a monthly podcast taking on the latest questions around health care legislation and compliance.
Welcome to another edition of Ask the Experts. Today's guest is Shelley Bloom, Director of Legislative Awareness and Training. Welcome to the podcast, Shelley.
Thank you, Tim.
Today, we are diving into some of the most important Affordable Care Act deadlines and employer responsibilities for 2026. There have been changes, new guidance issued, and a lot of questions. So we brought in our resident compliance expert, Shelly Bloom, to help break it all down. Shelly, again, thanks for joining us.
It's my pleasure.
Shelley, I know there are deadlines coming up soon for employers. The first one is the employer responsibility to provide a copy of the employee's enrollment. Also, there was a change to this last year. Can you share more details?
Yes, this is the time of the year when employers are concerned about getting copies of the 1095s, whether it be the 1095B or the 1095C. They need to get those to the employees by March 2nd. But as you correctly pointed out, last year there was a rule change that said employers are no longer required to send out these 1095 forms. They can instead send post some information that the employee can see that says we're no longer required to do this. However, if you would like a copy, you can obtain one by doing this. And it might be email this person, call this phone number, go to this email to request this. However, the employer wants the employee to be able to get a copy. They need to write that up. They need to post it where they would normally post the items that employees see. So all the other posters and things that talk about minimum wage and Family Medical Leave Act and, you know, the number of things that are there, that would be a good place to post it. But you should also post it if you have an intranet or if you have a desktop that your TPA or someone else provides to you to be able to see these notices and the notices must remain posted until the end of October, telling a person that if they want to get a copy of their 1095 B or C, they would go to this place to do it.
I also want to say that for employers that have employees, especially in a fully insured side, that want to get a copy to show that they have coverage, they can go to their point, their portal through their carrier and they can find the 1095-B form that the carrier has created for them. They can get a copy. They could also call the customer service number at the insurer if they need it that way. But the 1095-C forms only come from the employer. So it's It's the employer that needs to give those forms to the employees and now they don't have to mail them all out. They can just be an as needed and the reason they're as needed is It has not been a requirement to check a box on your federal tax return, saying that you had insurance coverage since 2018. In 2019, that law changed. It was no longer something they had to do, but this requirement has not gone away yet.
At the end of 2025, there was a discussion and a debate in Congress about extending the enhanced subsidies. They terminated after December 31, 2025. An individual may still be able to qualify for this subsidy. Can you tell us more and why subsidies are such an important part of the ACA?
Yes, subsidies have always been an important part of the ACA. A subsidy or tax credit is something that a person can apply for, usually through healthcare.gov or through the individual exchanges at the different states that have those. But the subsidy helps a person to pay for their health insurance and it is actually an advanced premium tax credit. So the advanced part allows the employee to get a part of that money to pay for their health insurance instead of getting it all as a tax credit at the end of the 12 months. Then we went into COVID in 2020 and, you know, everybody got sent home. Most of the employers weren't able to have a lot of their workforce at work, but you were still paying for premiums for some of them. So there was a lot of confusion and frustration and I can't go without coverage and it's not my fault that we're home. So the enhanced subsidies came out at the time of COVID and enhanced subsidies went from 401% to 600% of the federal poverty level because the basic subsidies or tax credit was 100 to 400% of the federal poverty level. So they layered on another 200%, which allowed people that were earning a little bit more to be able to take advantage of the subsidy or tax credit, especially during the time of COVID.
Those subsidies for the enhanced part, the 401 to 600%, terminated at the end of 2025. There was talk in Congress about bringing them back, but that hasn't happened, so we still have the basic subsidies from 100 to 400%. The reason those are important is when an employer, As an employee, it's their responsibility if they are an employer with 50 or more full-time, full-time equivalent employees, they must offer coverage that is minimum essential, minimum value, and affordable. And if they don't meet those requirements, then the employer could receive a penalty. The penalty is triggered when one of their employees goes to the marketplace or their state-based exchange and they receive a subsidy. That will trigger a penalty back to the employer. The employer will then have to work through that penalty letter to determine if they did offer affordable coverage and the employee got a subsidy that they shouldn't have received, or it could be that for that particular employee that the coverage the employer offered was not affordable and so they did go get the subsidy. But that is the dual importance of the subsidies. Thank you, Jim.
So moving on with our next question, Shelley, about ALEs. So 50 is the magic number with the ACA. The employer becomes an applicable large employer at that point. Does that happen immediately? What does the employer need to know about this?
Yeah, this is one of those things that comes up very often because we all know about 50 being that magic number. And so there's a confusion about counting your full-time employees plus your full-time equivalent employees. So that means those who are not full-time, you're looking at all of those part-time hours. You add them together, you divide by 120 to come up with your full-time equivalent employees. So you add the two together, do you reach 50 or not? When you reach 50, you are that ALE or applicable large employer as you described. That means that you then need to offer coverage that is minimum essential, minimum of value and affordable or face a penalty. But the big question is when does that apply to the employer? And some employers think that as soon as they hit that 50 mark, all kinds of things happen and they now have to report. And that's not true. Under the ACA, you're always looking backward to the prior calendar year to determine what you need to do at your renewal in the next calendar year.
So we are now in 2026 and let's say we have a renewal coming up for an employer in May of 2026. They're going to look backward to the 2025 calendar year to count up all those full-time employees plus their full-time equivalents for each month of the year. Add them up, divide by 12, is the answer 50 or more? If it is, then you need to offer coverage when you renew in May of 2026, and that coverage needs to be affordable. Or you can keep track of every month and see, you know, what months were you over 50? What months were you under? If for the average of the months of 2025, you had 50 or more, if that's six or more, then again, you're going to need to offer coverage when your plan renews in May of 2026 in this example. So I think what I would need to get through to everybody here is it's not immediately after you have a month of 50 employees that you need to adhere to all of this offer of coverage, coverage needs to be affordable. you look backward to the prior year to see what you have to do at the next year and at your renewal for that year.
Shelley, March 31st is the final date for employers to electronically transmit the reporting information to the ACA IRS. Does this affect all employers? Please remind us what needs to get done and by whom.
A lot packed into that question, Jim, and it's something that we've done for years, but the rules did change last year about electronic filing. And basically, most employers now are going to be subject to that electronic filing deadline. So the deadline for employers to get their forms, 1095 and 1094 form to the IRS is March 31st. Usually that needs to be electronically. The rule for electronic filing says if an employer has 10 or more W-2s, 1099 forms, as well as their 1095 B or C forms and their 1094 form, If in total they have 10 or more, then they need to do electronic filing. So for the greatest majority of employers, the answer is yes, they all must do that electronic filing. So for the larger groups, it's not as big of a problem. Many of them already have a vendor, whether it be their payroll vendor or a third-party administrator or some specialty vendor to do the electronic filing for the ACA 1095 and 1094 forms. But the smaller groups, especially those that move from fully insured to level funding, which is a self-funded product, That means that that smaller employer that just moved to level funding, let's say a group of 14, they also need to send in their 1095B forms with their 1094B form to the IRS, and it needs to be electronically filed.
Now that means filing under the AIR system. AIR stands for Affordable Care Act Information Returns. It is a special system just for the filing of 1095 and 1094 forms. It takes a while to get this set up. It requires a lot of back and forth between the employer and the IRS as far as testing goes and to make sure that things work right. So it's not something that, you know, if you're thinking about it, now is the time to act. If you wait until sometime in March, the chances are pretty slim about getting all of that through. And that's why using vendors is so important these days, because the vendors already have the system set up, and it's easier for the employer to pay the vendor to be able to have these forms sent in electronically.
Now, we can't talk about the ACA without talking about penalty letters. What things need to have occurred that prompts the IRS to send a penalty letter?
Oh, our favorite penalty letters, and it seems like they go in waves from the IRS sending out these to employers. They are currently working on the 2023 tax year. So we are currently working on filing for the 2025 year. They're looking backward to 2023 for penalties. Typically, we're talking about the letter 226J. And earlier in this conversation, we talked about subsidies or tax credit. And I said that if an employee that works for your company doesn't got a subsidy or tax credit that is going to trigger that penalty letter. So that would be the letter 226 J that the employee or would see saying, here are the people that got a tax credit or a subsidy. Did you offer them coverage? Was the coverage affordable? Did they properly waive the coverage? So those are the types of things that they're looking for in the penalty letter. It's up to the employer to respond back to the IRS to say, There was no offer of coverage made or the coverage was offered and it was or it was not affordable. And it could be that the employer already knew that there may have been three or four people that worked for them that would not have affordable coverage and they were willing to face that. Maybe they would see a penalty because of that. And there's also the point of the employer offers coverage, but it doesn't meet the required standards from ACA. So you have to offer coverage that is minimum essential, and that's just basically offering a plan. The coverage also needs to be minimum value. So at least 60% of the normal cost would be paid for or a bronze level plan. That's what we'd be talking about.
IRS is going to compare the person who got a subsidy or tax credit. They're going to find where that person was employed by using those W-2s and say, okay, we know that John Doe worked for this company, um, They're definitely a larger company. They should have offered coverage to John Doe. So, you know, let's find out what's going on. The difference this year with the penalty letters is when they are sent out now, the employer has 90 days to respond to the penalty letter compared to 30 days before. So it was a pretty big thing to the employer gets the penalty letter. There's that initial shock. Then what do I do? And now they give them more time. But the downside to all of this is you respond within the 90 days and you'll get a letter back from IRS saying, okay, we understand your explanations. Instead of owing us this, you owe us a smaller amount or you don't owe us anything now. Thank you. If the employer chooses not to respond to this letter and they've been given that 90 days, the next time you hear from the IRS, it will be a demand for payment letter. And that basically means your one and only chance to fix this problem or to remove part or all of the penalty is now gone. It's you just have to pay the penalty that the IRS sends out.
So this is more of a call to say, if an employer gets a penalty letter, it's important for them to contact the company that they work with, their insurance broker, to try to find out how this penalty letter could be reduced or removed altogether.
Our last question here is on the RxDC. There's another topic being discussed a lot this time of year, prescription drug reporting, or RXDC. This is part of the Consolidated Appropriations Act of 2021, and it is due June 1st of each year. Why is there so much chatter about this, Shelley?
Well, the prescription drug reporting is something that The carriers have a lot of the responsibility in doing, and it is because there are various parts of prescription drug coverage that the carrier does keep track of. Is it generic? Is it a brand name? Is it a specialty drug? Is it a biologic drug? So there's all those things that they keep track of, and then there are probably different co-pays, co-insurance, deductibles that happen with the prescription drugs. The CMS is who does this collection of the reporting. They want to know all of that information, how many people took prescription drugs, what was the average they paid. So there's many, many things that the insurance carrier has. They don't usually share it with the employer. So the insurance carrier does the bulk of this reporting, but because it is due on June 1st, Insurance carriers have made choices over the years, and this is the fifth year for this RxDC reporting. Some of the carriers, as they are required, will do the fully insured reporting completely. If an employer group is level funded, which is a self-funded plan. There are carriers that will do the level funded or self-funded reporting as well. However, they do require some additional information from an employer before they can do all of the parts of the reporting for that level funded or self-funded employer.
So we are seeing emails that are going out now from various insurance carriers. Some already have them out. Others will send them out later. There is no deadline or no specific timeframe for the carriers to get these emails out to the employer groups. But it is important for the employer groups when they see these, if they're not sure what they are seeing or what they're supposed to do, they should contact their broker and say, you know, what does this mean and what do I need to do? So if you are fully insured, the carrier is going to do all the reporting for you. And generally, there's nothing that you need to send back to the carrier. But if you are level funded, self-funded, then they're will be things in most cases that you will need to give to the carrier. And each carrier is asking for different things. There are a few carriers out there that I know that are going to do the level funded reporting. And right now they're not asking for anything. So it changes from carrier to carrier. You need to read the email from the carrier that you're insured with to know what you need to do.
And most importantly, the deadline to get that back to the carrier. If the employer fails to get the information required back to the carrier by that deadline date, then guess what? The employer is going to be responsible for those parts of the reporting on their own. So for some that doesn't mean a whole lot, for others that are larger level funded or self-funded, it could be a big deal. There are vendors out there that will do this part that the employer didn't get to do. They will do it. The carriers usually do not allow the receiving of materials after that deadline. So if the deadline is February 28th and there's no deadline that that's that early. But if that's the deadline and you give it to them on March 2nd, most of the carriers are going to tell you it's too late. It's past our deadline. You have to do it on your own.
So this is the call right now to say, please watch for those emails. Please make sure that you are getting the proper information back. Ask questions of your broker before you do that if you need to, because the carrier needs to get their part of the information in June 1. So does the employer. So Doing it now, responding as quickly as you can. You get it done. You get it off of your plate. You've done what you need to do.
Thank you, Shelley. We hope you found this podcast helpful and informative. Please join us next month for another edition of Ask the Experts.
This podcast is designed to highlight various employee benefit matters of general interest to our listeners. It is not intended to interpret laws or regulations or to address specific client situations. You should not act or rely on any information contained herein without seeking the advice of an attorney or tax professional.