Summary

Employers have begun to receive notices from the Health Insurance Marketplace Exchanges (Marketplace) notifying them that one or more of their employees is eligible for governmental subsidies under the Marketplace. Employers may want to consider appealing these notices to both correct any misinformation contained in the notices as a defense to potential penalties that may be assessed in the future by the Internal Revenue Service (IRS), as well as prevent employees from having to repay governmental subsidies to the IRS.

In Depth

Summary

Employers have begun to receive notices from the Health Insurance Marketplace Exchanges (Marketplace) notifying them that one or more of their employees is eligible for governmental subsidies under the Marketplace. Employers may want to consider appealing these notices to both correct any misinformation contained in the notices as a defense to potential penalties that may be assessed in the future by the Internal Revenue Service (IRS), as well as prevent employees from having to repay governmental subsidies to the IRS.

Background

In 2015, the Affordable Care Act’s (ACA) employer shared responsibility (ESR) rules became effective. The ESR rules apply to employers who employ 50 or more full-time employees (FTE) or full-time equivalent employees (FTEE) (100 FTEs in 2015). Employers who meet the FTEE threshold must offer affordable, minimum value health insurance to their FTEs or potentially be assessed a penalty by the IRS. An employer’s penalty assessment is triggered when an FTE is not offered affordable, minimum value coverage by the employer and receives a subsidy under a federal- or state-facilitated Marketplace. Effective for 2016, the Marketplace is required to send a notice to an employer identifying employees who received governmental subsidies from the Marketplace and explaining that an ESR penalty may be assessed.

What is a Marketplace Exchange Notice?

The Marketplaces have begun to send notices to employers whose employees have obtained Marketplace coverage, received a governmental subsidy, and self-reported that he or she:

  • Didn’t have an offer of health care coverage from the employer
  • Did have an offer of health care coverage, but the offer was not affordable or did not provide minimum value
  • Was in a waiting period and unable to enroll in health care coverage.

Once an employee applicant meets these criteria, a notice is automatically generated by the Marketplace and sent to the employer (as identified by the employee applicant). According to an FAQ issued by the Centers for Medicare and Medicaid Services (CMS), the federally facilitated Marketplaces will send out notices in batches throughout 2016.

The Marketplace notices generally provide the employee’s name, birthdate, last four digits of their Social Security Number and the Marketplace Application ID Number.

It is important to note that receipt of a Marketplace notice does not mean the IRS has or will assess a penalty on the employer and failure to appeal the notice does not preclude the employer from later appealing an assessment of an ESR penalty by the IRS.

The notice merely serves as an initial declaration that there may be a problem with the employer’s offer of health insurance to the named individual. Keep in mind that notices may have been generated due to an employee’s misunderstanding of certain details and eligibility provisions of the employer’s health insurance plan. Also, some of these notices have been issued for former and part-time employees who will not trigger ESR penalties.

What Should I Do If I Receive a Marketplace Notice?

Employers may appeal the Marketplace notices if there has been a mistake regarding assertions made by the employee. Employers should carefully review the notice to determine how to respond. Employers receiving notices from a federally facilitated Marketplace or a state-based Marketplace operating in California, Maryland, Colorado, Massachusetts, District of Colombia, New York, Kentucky or Vermont may find online. Some of the other states have posted appeal forms on their Marketplace websites.

The appeal process serves an important purpose in overall compliance with ESR requirements by both setting the record straight with respect to potential ESR assessments by the IRS and ceasing the payment of additional governmental subsidies to employees who may not be eligible for such subsidies and will have to repay them or offset the amount of overpayment from any refunds on their tax returns. With the complicated nature of the ESR rules, health care eligibility and offers of coverage, it is to be expected that employees may make mistakes in reporting the details of their insurance and even who is their actual employer. Preemptively correcting these mistakes benefits employers, employees and the government bodies regulating the ESR requirements.

The standard appeal forms permit an employer to provide additional facts refuting any erroneous information or for mitigating the possibility of a potential penalty. Additionally, an employer may substantiate any claims made with attached documentation. Marketplaces that do not utilize the standard appeal form may send different Marketplace notices which contain different appeal processes.

It is important for employers to maintain detailed records to substantiate statements made during the appeals process. An employer may need records in order to:

  • Confirm that the employee was actually employed by the employer during the timeframe for which he/she applied for Marketplace coverage and received a premium tax credit
  • Confirm that the individual was considered an “employee” and not an “independent contractor”
  • Confirm whether the employee was an FTE or part-time employee (and possibly excluded from eligibility under the health plan on that basis)
  • Determine how long the employee received Marketplace coverage that included a tax subsidy (to estimate the employer’s potential ESR penalty).
  • Determine whether the employer offered that employee affordable, minimum value coverage during the timeframe identified in the Marketplace notice
  • Determine whether the employee was an active employee or receiving COBRA coverage during the period in question
  • Determine whether the employee was offered health care coverage that was affordable and provided minimum value, but was waived by the employee

The appeal process is the employer’s first line of defense in refuting a claim that could potentially lead to an ESR penalty. For example, an employee who was below the hours’ requirement to be considered an FTE might claim that he or she was not provided an offer of coverage and subsequently obtain a tax subsidy or advance premium payment for coverage on the Marketplace. The appeal process allows the employer to provide documentation substantiating that the employee at issue was not owed an offer of coverage due to his or her employment status.

Employers should also examine the timeframe provided to request an appeal. Marketplaces which utilize the standard appeal form provide a 90-day deadline to appeal from the date of the Marketplace notice.

McDermott Perspectives

While failure to appeal a Marketplace notice does not preclude an employer from later appealing an assessment by the IRS that an ESR penalty is owed, it may be advisable to appeal in certain circumstance where information provided to the Exchange by the individual is erroneous. Responding to notices can both establish a record of future defenses to ESR penalty assessments as well as protect employees from having to repay subsidies to which they are not entitled. Thus, it is important to establish policies and procedures for responding to Marketplace notices and to maintain good records substantiating employment status, offers of coverage, affordability of premiums and minimum value of health plans. If you receive a Marketplace notice and have questions or would like to discuss potential action steps, please contact the authors of this article.