DEPARTMENT OF HEALTH AND HUMAN SERVICES BEGINS ISSUING AFFORDABLE CARE ACT MARKETPLACE SUBSIDY NOTICES TO EMPLOYERS
On June 21, 2016, the U.S. Department of Health and Human Services (“HHS”) began mailing notices (“Notices”) to employers informing them that one or more of their employees has been certified as eligible for either advance payment of a premium tax credit (“APTC”) or cost-sharing reductions (“CSRs”).
The Notice is similar to notices received by employers from state-maintained Marketplaces beginning in 2015. Both are related to an employer’s potential exposure to tax penalties under the employer shared responsibility rules of the Patient Protection and Affordable Care Act (“PPACA”), more commonly called the “employer mandate.”
WHY IS THIS NOTICE BEING PROVIDED TO EMPLOYERS NOW?
The Notice is intended to assist HHS in verifying that individuals who have been awarded APTC or CSRs were in fact eligible to receive them. The Notice is triggered when an individual applies for coverage through the federal Marketplace and asserts that he or she is eligible for APTC or CSRs because the individual meets the household income and other requirements for these subsidies and either:
- Did not receive an offer of health care coverage from the employer;
- Did receive an offer of health care coverage from the employer, but such offer was not Affordable or did not provide Minimum Value; or
- Was in a waiting period and unable to enroll in health care coverage.
For purposes of the employer shared responsibility rules, health care coverage provides Minimum Value if the coverage pays at least 60% of the total allowed cost of benefits provided to the covered group. Generally, health care coverage is deemed Affordable if the premium does not exceed a specified percentage of the employee’s household income. This percentage is 9.66% in 2016, and will be 9.69% in 2017.
The Notice provides identifying information for the employee in question, and explains that the employee indicated, as of the date of application for Marketplace coverage, that he or she worked for the employer at the address shown on the Notice. The Notice also explains the basis for the employee’s eligibility for APTC or CSRs (as explained above), information on why the employer received the Notice, and information on appeal rights (which are described in more detail below).
DOES RECEIPT OF A NOTICE MEAN THAT AN EMPLOYER IS SUBJECT TO A SHARED RESPONSIBILITY PAYMENT?
The Notice does not necessarily mean that an employer will be subject to an employer shared responsibility payment. An employer with at least 50 full-time employees or full-time employee equivalents, referred to as an applicable large employer (“ALE”), might be subject to an employer shared responsibility payment for any month during which at least one full-time employee enrolled in a qualified health plan through the Marketplace and receives APTC or CSRs.
For purposes of these rules, an employee is generally deemed to be a full-time employee if he or she works an average of 30 or more hours per week in a given month. Notably, the Notice provides that the Internal Revenue Service (“IRS”), rather than HHS, determines whether an employer will be required to make a shared responsibility payment.
There are two primary types of shared responsibility payments: a payment for a failure to offer health care coverage to enough full-time employees and dependents, and a payment for an offer of health care coverage that does not provide Minimum Value or is not Affordable. Generally, the first penalty is calculated as an amount ($2,080 per year in 2015, and $2,160 in 2016) per employee, multiplied by the number of individuals employed by the employer (minus the first thirty employees). The second penalty is calculated as a set amount ($3,120 per year in 2015, and $3,240 in 2016) multiplied by the number of employees whose health care coverage was not Affordable or did not provide Minimum Value and who were entitled to APTC and CSRs.
HOW DOES AN EMPLOYER APPEAL THE DECISION IN THE NOTICE?
If an employer receives a Notice regarding one of its employees, and it believes that APTC or CSRs were provided to the employee in error, it should consider appealing the Notice. Such an error might occur if the employee was in fact offered health care coverage, or if the coverage offered to the employee was Affordable and did in fact provide Minimum Value.
If an employer decides to appeal, it has 90 days from the date of the Notice to request an appeal from the Marketplace. The first Notices were dated June 21, 2016; an appeal of one of these Notices must be made no later than September 19, 2016.
Any appeal must include, at a minimum:
- A completed copy of the Employer Appeal Request Form, if the Notice was sent on behalf of the federally-facilitated Marketplace, or on behalf of a state-based Marketplace operating in California, Colorado, the District of Columbia, Maryland, Massachusetts, New York, or Vermont. The form is located at www.healthcare.gov/marketplace-appeals/employer-appeals;
- Copies of any supporting documents; and
- A copy of the Notice.
Appeals to the federal Marketplace can be mailed or faxed:
- Appeals by mail should be sent to:
Health Insurance Marketplace
Dept. of Health and Human Services
465 Industrial Blvd.
London, KY 40750-0061
- Appeals by fax should be sent to 1-877-369-0129
In addition to the appeal requirements listed above, the employer must also ensure that it notifies the employee of an appeal. Upon appeal, any decision made by HHS will be final with respect to the employer. However, if HHS decides in favor of the employer upon appeal, the employee will have an opportunity to appeal this decision. The result of this second decision, if any, will be final. As noted above, the Notice provides that the IRS, rather than HHS, decides whether an employer is subject to an employer shared responsibility payment. Accordingly, filing an appeal of the Notice may not affect whether an employer is required to make such a payment.
WHAT OTHER STEPS SHOULD AN EMPLOYER CONSIDER UPON RECEIVING A NOTICE?
An employer should develop a strategy to ensure that it has catalogued every Notice it receives, including any Notices that may be delivered to non-administrative locations or local offices. In addition, employers should prepare strategies for verifying the facts alleged in the Notice as well as its own reporting on 1095-C or 1095-B. Finally, employers should develop processes that ensure that any appeals are properly and timely filed.
About the Author
Eric Penkert is an associate at Ogletree Deakins. He practices in the areas of employee benefits law, ERISA, and taxation. Mr. Penkert’s practice includes representation in the areas of qualified plans, fringe benefits, and compliance with other federal laws relating to employee benefits matters. Mr. Penkert assists clients in designing and drafting plans, advises clients regarding the legal requirements for operating and administering plans and prepares and submits filings to the Internal Revenue Service.