Over the last few months, employers have been receiving notices from the Federal Health Insurance Marketplace/Exchange regarding employees who applied for Exchange coverage and were determined eligible for a tax subsidy to defray part of the cost. These notices offer employers a first line of defense against penalties under the Affordable Care Act’s employer mandate. Employers receiving an Exchange Notice should act immediately to determine whether an appeal is appropriate as the deadline for appealing notices issued in July is quickly approaching.
As background, the Affordable Care Act (ACA) imposes penalties on applicable large employers (ALEs) who do not offer affordable and minimum value coverage to employees. Generally, if an ALE has made an offer of affordable, minimum value coverage to an employee, the employee should not be eligible for a tax credit or subsidy. If an employee, mistakenly or not, applies for a tax credit or subsidy, an employer who did make an offer of coverage to the employee may receive an Exchange Notice. While only the Internal Revenue Service (IRS) can actually assess a penalty for failing to offer affordable, minimum value coverage, appealing an Exchange Notice may be an opportunity for an employer to avoid an IRS inquiry or penalty assessment down the road if it is determined the federal assistance was awarded in error based on the employer’s appeal.
The deadline for appealing the Exchange Notice is 90 days after the date of the notice. If an employer receives a notice for a part-time employee who was not offered coverage, it is important to confirm the hours the employee actually worked using the guidance provided by ACA regulations. Any ALE who receives a notice for a full-time employee who was offered coverage should proceed with an appeal as soon as possible.
Employers should take into account all ACA guidance when preparing an appeal, including guidance on how to determine affordability taking into account wellness programs and opt-out payments. Because the employee will have a compelling financial incentive to avoid paying back the subsidy, it is critical to prepare a comprehensive appeal supported by strong evidence, including evidence that the employee was actually offered coverage. Examples of the documentation needed include pay stubs from an employee electing the lowest cost minimum value coverage offered to the employee to establish affordability, the Summary of Benefits and Coverage stating the plan provides minimum value (or attestations of minimum value from the carrier, thirdparty administrator or a CPA), open enrollment materials, election forms and a written waiver of coverage showing the offer was made and rejected, and copies of the employee’s most recent paystub and W-2 to establish affordability.
In some cases, an appeal is not necessary. For example, if the employer did not make an offer of affordable, minimum value coverage to an employee, no appeal is required. In addition, an appeal is optional if the employer is not subject to penalties with respect to an employee that obtained a premium subsidy, either because the employee is part-time or the employer is a non-ALE. Whether to appeal in this case is a business decision and employers may want to discuss their options with legal counsel. In all cases, however, employers should remember that it is a violation of the ACA to take any adverse action against an employee who applies for and receives a premium subsidy on the Exchange.
Content included in the Summer 2016 Benefits and Employment Briefing provided by our partner, United Benefit Advisors