The Patient Protection and Affordable Care Act requires that employers report the aggregate cost of “applicable employer-sponsored coverage” on Form W-2.  (See our August 6, 2012, posting entitled “Reminder – 2012 Form W-2 Reporting For Group Health Plans” for an explanation of this requirement.)  Applicable employer-sponsored coverage generally includes coverage under any group health plan made available to employees by an employer that is excludable from gross income.  In providing an enumerated list of the types of coverage that are exempt from the reporting requirement, the Internal Revenue Service explained in Notice 2012-9 (Q&A-12) that the term “applicable employer-sponsored coverage” generally does not include any coverage for HIPAA-excepted benefits, other than coverage for on-site medical clinics.

The general rule for on-site medical clinics, according to Notice 2012-9 (Q&A-32), is that coverage provided under the clinic is includible in the aggregate reportable cost of employer-sponsored coverage if the coverage qualifies as a group health plan.  A group health plan, for this purpose, generally is an employer plan that provides health care to employees, former employees, or others associated with the employer in a business relationship.  Health care, under the HIPAA rules, includes items such as preventive, diagnostic, and therapeutic services; procedures addressing a person’s physical, mental or bodily functions; and the sale or dispensing of drugs or other medical devices.  So, if an employer’s on-site clinic provides any of these services (as most traditional, non-employer-affiliated clinics do), the cost of coverage provided under the clinic should be included when determining the aggregate reportable cost of employer-sponsored coverage for the Form W-2.

Notwithstanding this, Q&A-32 provides an exception to this reporting requirement if an employer does not charge a COBRA premium for access to the on-site clinic.  In other words, if former employees have free access to the employer’s on-site clinic for the duration of the period that they are entitled to COBRA coverage, then the cost of the clinic coverage may be excluded when calculating the aggregate reportable cost of employer-sponsored coverage.  Employers who charge a COBRA premium to former employees for access to an on-site clinic will not qualify for this reporting exception and, generally, should use that COBRA premium when calculating the aggregate reportable cost.  (Other methods for determining the aggregate reportable cost of employer-sponsored coverage are discussed in Notice 2012-9 (Q&A-24).)

Aggregate reportable cost information must appear on the 2012 Form W-2.  In Notice 2012-9, however, the IRS provided transition relief for employers with on-site medical clinics.  The cost of clinic coverage need not be included until the 2013 Form W-2, due January 31, 2014.