Marketplace Subsidy Notices: Best Practices for Employers
June 2016 was a busy month for benefits professionals! Form 1095s were delivered and received, IRS Form 1094 initial filing was completed by the June 30th deadline and, as promised in late-2015 by the Centers for Medicare & Medicaid Services (CMS), the Federally Facilitated Marketplace (FFM) began sending notices informing employers that employees have enrolled in an FFM and were determined eligible for premium subsidies.
Since the employer shared responsibility penalties set forth in Section 4980H of the IRC could be triggered when at least one full-time employee obtains a premium subsidy on the Marketplace, an employer receiving one of these notices should be concerned about the possibility of penalties. However, these notices do not guarantee that a penalty will be assessed.
What Employers Should Know about Marketplace Subsidy Notices
A quick reminder of the two potential penalties under the employer shared responsibility mandate. The “A Penalty” and the “B Penalty.” The A Penalty may be assessed against an applicable large employer (an employer with 50 or more full-time employees and equivalents) if the employer fails to offer minimum essential coverage to at least 95% of its full-time employees and at least one full-time employee enrolls in the Marketplace and receives a premium subsidy. The A Penalty is generally equal to $180 per month ($2,160 per year) multiplied by the number of all full-time employees, minus up to 30 full-time employees. The B Penalty could be assessed against an applicable large employer even if the 95% threshold is met if a full-time employee is offered unaffordable coverage or coverage that lacks minimum value. The B Penalty, which is equal to $270 per month ($3,240 per year), is assessed only against those full-time employees who enroll in the Marketplace and get a premium subsidy. Both penalty amounts are adjusted annually for inflation.
An employer receiving an FFM subsidy notice is not automatically subject to a shared responsibility penalty. CMS has no authority to make penalty determinations under Code Section 4980H –the IRS independently makes this determination. The IRS has not yet provided concrete procedures related to penalty assessments under Code Section 4980H, but it has indicated that employers will have the opportunity to appeal assessments.
- Various circumstances could exist under which an employee is entitled to a premium subsidy without triggering a penalty on the employer.
- The employee could be part-time and ineligible for coverage under the employer’s plan.
- The employee could be in a “limited non-assessment period” such as a 90-day waiting period or an initial measurement period.
- It may be that the employer’s offer of coverage is unaffordable for Marketplace subsidy purposes (which is based on 9.66% (for 2016) of household income) but is affordable under one of the affordability safe harbors allowed under the pay-or-play regulations.
- It may be that the employee was ineligible for coverage under a multi-employer plan, but the employer cannot be assessed a penalty based on the special interim guidance for multi-employer plan coverage.
Nevertheless, there will undoubtedly be situations in which an employee receives a subsidy despite having an offer of affordable, minimum-value, employer-sponsored health coverage. Whether this happens due to an employee’s misunderstanding of the Marketplace application or the employee simply misrepresenting his or her opportunity to enroll in other coverage, employers have the ability to appeal an FFM’s subsidy determination. When the employee receiving a subsidy is a full-time employee who was offered coverage, the employer should strongly consider appealing as soon as possible. Although CMS cannot impose either the A or B Penalty, the IRS could later impose a penalty and it would be helpful for an employer to have a record showing that the subsidy determination was appealed and resolved in favor of the employer.
When the employee is not a full-time employee, or some other circumstance exists such that the employer cannot be assessed a penalty, an employer would have less incentive to challenge the subsidy determination.
If an employer decides to appeal an FFM’s subsidy determination, the appeal must be submitted no later than 90 days after the date the employer received the notice. If the appeal is resolved in favor of the employer, the relevant employee will receive a notice from CMS asking him or her to update the Marketplace application. The employee will also be informed that failure to update the application could later result in tax liability.
When completing a Marketplace application, employees are likely to enter the address of their worksite, which may not have HR representatives staffed at that location. Therefore, employers with multiple worksites should institute an internal mechanism for identifying the FFM subsidy notices and routing them to the correct person. These internal procedures will help avoid inadvertently missing the 90-day deadline to appeal a subsidy determination.
Employers can expect to receive increasing numbers of FFM notices in the coming months. In the future, subsidy notices may also be received under state-based Marketplaces. In each case, employers should review their internal records to determine if there is any penalty risk. It is important to note that a full appeal process, from filing to decision, could take up to 300 days…you are reading that correctly! So, quick, decisive and thorough action is important.
It is important to note, that once these notices are received with an employee name, every employee is now protected from subsequent adverse action exactly the same way that Sarbanes-Oxley securities fraud whistle-blowers are protected. Any action that may be taken against these employees will require proof that their subsidy certification was totally unrelated to the action. So, ensure that you have all of the necessary documentation and attorney input if warranted.
Note: Subsidy notice reconciliation is not a part of your Software and Service Agreement with Health E(fx) unless you have elected Managed Services. For more information on Managed Services, please contact your Client Services Manager/Advocate or click here. For more information on Enterprise™, click here.
How to File an Appeal
IMPORTANT: This appeal will NOT determine if an employer has to pay the fee. Only the IRS, not the Health Insurance Marketplace or the Marketplace Appeals Center, can determine which employers are subject to the fee. Learn more about the Employer Shared Responsibility Payment on IRS.gov.
Employers have 90 days from the date stated on the notice from the Marketplace to file an appeal.
Step 1: Identify which employees will require an appeal. A quick sorting procedure will help you in this first, important task.
Quick Guide: Who Should You Appeal?
If you received a subsidy notice, verify the employee’s ACA eligibility determination in Health e(fx) in the Employee Search section.
- If the employee is full-time according to the ACA and was not offered employer coverage, an appeal is not required as the penalty applies and the subsidy is warranted. Only appeal if there is an error in your records and a waiver of coverage was not recorded correctly in the system. In this case, update your source records, send to Health e(fx) in the next file and file an appeal.
- If the employee is ACA full-time and was offered coverage – File an appeal.
- If the employee is ACA part-time and was offered coverage – File an appeal.
- If the employee is ACA part-time and was not offered coverage – No need to appeal.
- If the employee is/was in a limited non-assessment period or in an administrative wait period – the subsidy is correct for those months, and depending on when/if the employee became eligible and was offered during the year, the subsidy is warranted for those months of no coverage. It is not necessary to file an appeal, but filing an appeal may be helpful to ensure the Marketplace notifies the employee that they will need to update their information upon receiving the offer.
- An interesting, but possible case: the employer receives a Marketplace subsidy notification of a person who is not an employee of your organization. While unusual, it can happen as the online process requires the person to provide an employer name and address. Best practice is to file an appeal and note clearly that the person is not (or may have never been) an employee.
Step 2: File the appeal in one of two way
- Fill out an Employer Appeal Request Form (your employee will fill out the below form if they are appealing based on state of residence and filing of Marketplace coverage). Employer Form is here: https://www.healthcare.gov/downloads/marketplace-employer-appeal-form.pdf
- For Alabama, Alaska, Arkansas, Louisiana, Montana, New Jersey, Tennessee, West Virginia, and Wyoming: Employee Appeal Request Form
- For Arizona, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa, Kansas, Maine, Michigan, Mississippi, Missouri, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Virginia, Wisconsin: Employee Appeal Request Form
- For California, Colorado, Connecticut, District of Columbia, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, New York, Rhode Island, Vermont, Washington (Use this form only after you’ve used up all of your eligibility rights with your state): Employee Appeal Request Form
- Or, submit a letter with the following information:
- Business name
- Employer ID Number (EIN)
- Employer’s primary contact name, phone number and address
- The reason for the appeal
- Information from the Marketplace notice received, including date and employee information
Step 3: Mail your appeal request form or letter and a copy of the Marketplace notice to this address:
Department of Health and Human Services
Health Insurance Marketplace
465 Industrial Blvd.
London, KY 40750-0061
After You File an Appeal
The employer will receive a letter saying the appeal was received. The letter will provide a description of the appeal’s process and instructions for submitting additional materials, if needed.
The employee will also receive a letter describing the appeals process; their rights as an employee, plus instructions for how to submit documents for consideration in the appeal; and how the appeal decision may affect the employee’s eligibility for advance payments of the premium tax credit and cost-sharing reductions (if applicable) for the coverage year.
The Health e(fx) V2.0 release includes the ability to begin the appeal process and document all activity within the system by employee. Training on how to use this functionality will be available in the coming weeks.
For questions about the healthcare law and business, contact the ACA Employer Call Line at 1-800-355-5856. If you have questions about an appeal, call the Marketplace Appeals Center at 1-855-231-1751. TTY users should call 1-855-739-2231. Hours of operation are Monday through Friday 7:30 a.m. to 8:30 p.m. Eastern Time (ET), and Saturday 10:00 a.m. to 5:30 p.m. ET.