More employers have been receiving notices from their state health insurance exchange, informing them that one of their employees has received subsidies to purchase insurance on the exchange and that the employer may be subject to a penalty for not offering employees a health plan that complies with the law.
The notices are not calls to pay a fine – only the IRS can do that – but employers need to respond with documentation to show that they did in fact offer affordable coverage that meets the minimum value requirements of the Affordable Care Act.
If you receive a notice, you will need to file an appeal promptly. If you don’t, or if your appeal is eventually rejected, you could receive a demand for payment from the IRS.
You can appeal the finding if you believe the employee was ineligible for the premium subsidy.
Individuals whose employers offered them affordable coverage that meets the minimum value requirements are not eligible for premium subsidies under the ACA.
If they do receive a subsidy and you did offer them compliant coverage, there will be a conflict on your form 1095-C that you have to file with the IRS. That could prompt the IRS to either go after you for a penalty, or go after the employee, from whom it would demand repayment of the subsidy.
Penalties and the law
First off, there could be some innocuous reason for receiving the notice, such as one of your part-time employees who was not offered coverage may have been eligible for a subsidy on the exchange.
There should only be two reasons that an employee for a large employer that is subject to the employer mandate receives a subsidy on an exchange:
- The plan does not provide minimum value (defined as covering 60% of all health costs).
- The plan is not affordable (less than 9.66% of the employee’s income in 2016, and 9.69% in 2017).
The applicable fine would be $3,240 per full-time employee receiving a subsidy or $2,160 per full-time employee (minus the first 30).
Appeal problems
Some employers who have gone through the appeals process report problems. According to the National Association of Health Underwriters’ (NAHU) Compliance Cornered blog:
- One employer submitted proof that it had offered coverage to the employee that met minimum value and was affordable. But the hearing officers countered, requesting proof of this offer in the form of the employee’s response to the offer.
- An NAHU review of several decision letters found that decisions often cite “insufficient information” as the basis for the decision to reject the appeal.
- Still other employers have received a letter while an appeal is under review that asks for more information to support the appeal.
What you can do
The NAHU recommends that employers develop a checklist of materials that they will provide to ensure that appeals are not lost for want of more information.
The following documents could be pertinent:
Proof that employee was offered coverage:
Form or letter confirming the employee’s election of benefits.
Employer-sponsored coverage declaration form or notice.
Employee’s benefits summary chart.
Letter from health insurer stating that the employee is enrolled in employer-sponsored coverage.
Proof of income and payments:
Copies of employee pay stubs.
Payroll ledger or worksheet.
Previous year’s W-2 form.
Proof of affordability:
Rate sheet of employer-sponsored coverage.
Summary of Benefits and Coverage sheet.
Pay stubs showing premium deductions.
Proof of minimum value:
Summary of Benefits and Coverage sheet.
Report of Minimum Value Certification from an actuary.
Remember: Appeal decisions don’t automatically trigger IRS penalties, but a successful appeal would be helpful for you if the IRS tries to penalize you.