Employee Benefits Compliance, Exchanges / Marketplaces / Subsidies, Marketplaces, Notices & Disclosures (Sample forms), Subsidies

ACA Marketplace & IRS Notices: What’s the Difference?

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In the coming months employers may receive two separate ACA notices related to employees who receive subsidies in the Marketplace/Exchange.

  • Marketplace/HHS Notice
  • IRS Notice

It is important that employers understand the difference between the two separate ACA Notices: what each is about, the appeal rights and whether it is wise to appeal.

HHS/Marketplace NoticeIRS Notice
Notice is called the Health Insurance Marketplace (Exchange) CMS Mktplace NoticeNotices haven’t been sent yet, and we do not have a specific date when the IRS will begin sending them
It is a notification   that an employee purchased coverage in the current year and received a subsidy/premium tax creditIt is a notification that an employer may owe an employer shared responsibility penalty/ payment (4980H(a) or (b)).
There is an appeals process, and the issue is whether the employee should currently be receiving the subsidy (premium tax credit or APTC) in the ExchangeThere will be an appeals process, and the issue is whether the large employer owes the penalty/payment (4980H(a) or (b)) because the employer failed to offer affordable, minimum value coverage in the prior year to a full-time employee(s)
This is not a determination on whether an employer owes an employer shared responsibility  penalty (IRC 4980H)This IRS notice is the first step in the process that will determine whether an employer owes an employer shared responsibility 4980H penalty/payment

Appealing a 2016 Marketplace/HHS Notice will not affect the IRS Notice the employer might get later in 2016 , but it may affect whether an employer receives an IRS notice in 2017. This is because the IRS notices relate to an employer’s failure to offer minimum value affordable coverage in the prior year, while the Marketplace notices relate to employees’ eligibility for a subsidy in the current year. Also, the IRS notice should be sent only to “applicable large employers” (ALEs), but the HHS notice will be sent to both large and small employers.

IRS 4980H Penalty Notice

In the third or fourth quarter of 2016, some employers will receive a notice from the IRS indicating that the employer may owe a 4980H penalty under employer shared responsibility provisions (ESR). The notice will apply to coverage that the IRS believes the employer did not offer (or offered but was not affordable or minimum value) during the prior (2015) calendar year. We don’t currently have a lot of information from the IRS on how the employer shared responsibility penalties (the 4980H penalties) will be imposed   According to Q&A 27 and 28 on the IRS website, the IRS will “adopt procedures.” (See more at https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act. However, before any liability is assessed or notice and demand for payment is made:

  • The IRS will contact employers to inform them of their potential liability.
  • Employers will have an opportunity to respond, this will be the appeals process.
  • If an employer disagrees with the proposed penalty assessment, the employer should file an appeal within the time limitation.

HHS/Health Insurance Marketplace (Exchange) Notice

Many employers have recently received Notices from the Health Insurance Marketplace (Exchange), reporting that an employee is getting health benefits from the Health Insurance Marketplace and also qualified for an Advance Premium Tax Credit (a subsidy also referred to as APTC).  An employee who qualifies for and uses a Premium Tax Credit (APTC) will trigger possible employer shared responsibility (ESR) penalties against an “applicable large employer” (ALE).  (For prior Leavitt articles on Marketplace notices, click here and here. )

However, this form is NOT saying an employer owes ESR penalties.  The Exchange does not impose ESR penalties; the IRS imposes this and will send a separate notice later for that, if applicable.  An employer who receives a Notice from the Exchange can appeal it within 90 days. The appeal issue is whether the employee should be receiving the Premium Tax Credit (APTC), not whether an employer penalty applies.  BUT, because a large employer MAY owe penalties as a result of the premium tax credit, it is wise for large employers to check their records after they receive this notice to decide whether to appeal.

An employer should check its records for the following:

  • Were the 4 Steps to ESR compliance completed?
  • Are you a large employer per Step 1? If not, you may decide it is not worth the time to file an appeal. However, employers of any size may appeal.
  • What is the effective date (per Step 2) that you are exposed to possible penalty? If the time frame the employee received the subsidy is prior to this time period, you may decide it’s not worth the time to file an appeal.
  • Are you offering a plan that meets Minimum Value and Affordability (per Step 3)? If the employee(s) listed on the Marketplace Notice was/were included in the offer, you will want to file an appeal.

Note that the important facts for this appeal relate to whether an employee was offered affordable minimum value coverage. Additional facts relating to whether an employee is full-time or part-time, whether an employee is in a measurement period, or any other related fact will be important for the IRS appeal, but not for this appeal.

The Marketplace notices issued to date (August 2016) only relate to the first part of 2016 and not the full year. Therefore, if an employer decides to appeal, it is important to pay attention to the time frame the appeal covers. It may be necessary to file an additional appeal for the remaining portion of the year, if applicable.

Bottom line:  While it is actually possible in limited circumstances that an employee could still be eligible for a subsidy even if an employer offered affordable minimum value coverage for the appropriate time periods, such an employee probably should not be receiving a subsidy in the marketplace.   If one or more of an “applicable large employer’s” full-time employees are receiving a subsidy, the employer will want to file an appeal.    Small employers who offer coverage that is affordable and provides minimum value CAN file an appeal but might not want to take the time to do so  (even though the employee likely should not have qualified for a subsidy), since small employers will not be subject to the ESR penalty.

How to File an Appeal from the HHS Notice

  1. Complete the Employer Marketplace Appeal form Request Form (it includes Instructions) or submit a letter with the following information: employer business name; 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. Include a copy of the Marketplace notice with the Appeal form or letter.
    1. Note that this federal form should be used not only by employers appealing notices from the federal Marketplace, but also by employers who are appealing notices from a state-based Marketplace operating in California, Colorado, District of Columbia, Kentucky, Maryland, Massachusetts, New York or Vermont.
  2. Section 2 of the Appeal form allows the employer to designate a secondary contact to help with the appeal.
  3. Section 3 of the Appeal form asks why the employee should not have been eligible for the subsidy. Information could include:
    1. Documentation showing the employee share of the lowest-cost self-only coverage offered by the employer was less than $93 in 2015, or was less than 9.56% of the employee’s compensation under either the “W-2” or the “rate of pay” safe harbor.
    2. Documentation showing the coverage offered to the employee provided at least “minimum value” – this might be the insurance company SBC stating that the policy provided at least minimum value.
  4. Submit the appeal form or letter within 90 days of the date on the Marketplace notice. Include supporting documents to which you refer and include a copy of the Marketplace notice.
  5. Mail or Fax to submit
    1. Mail: Health Insurance Marketplace, HHS, 465 Industrial Boulevard, London KY 40750-0061
    2. Fax: 1-877-369-0129
  6. Wait for a response from the Marketplace Appeals Center
    1. You will receive a notice that they received the appeal
    2. The employee will also receive notice that the employer appealed
    3. If there is a problem with the appeal, you will be told how to correct it
    4. The appeal will be reviewed
    5. Additional information may be requested
    6. You and the employee will receive notice of the decision. (If the Marketplace grants the employer’s appeal, the employee can appeal that decision.)