Many employers have received notices from various exchanges (also called “marketplaces” or a litany of other names depending on the state at issue) indicating that one of its employees received subsidized exchange coverage and the employer may, therefore, be subject to a penalty for failure to offer Affordable Care Act (ACA)-compliant coverage.
These notices are NOT assessments or impositions of penalties/excise taxes, which can only be imposed by the IRS. These notices are sent because the employee obtained a premium tax subsidy. Subsidies are not available to individuals if their employer offered them minimum value, affordable coverage.
An employee’s receipt of exchange subsidized coverage is not necessarily a problem. For example, part-time employees who did not get an offer of coverage would be eligible for a premium tax subsidy. There are, however, other situations where employers should consider setting the record straight with the exchange (before these cases are referred over to the IRS).
An employer can appeal the finding that it may be subject to a fee if it believes the employee was not eligible for the premium tax credit. Employers should therefore be aware that the exchange appeal process only looks at the following three issues:
- Did you offer health coverage to the employee that met the “minimum value standard”?
- Was the health coverage you offered to the employee “affordable”?
- Is the employee enrolled in your health coverage?
If the employer offered minimum value, affordable coverage, but the employee has been given a subsidy toward exchange coverage, it is likely that the employee’s story to the exchange and your report next year on Form 1095-C will be in conflict. If the employee continues to receive the subsidy, the IRS may either attempt to impose a penalty on the employer or seek recovery from the employee of the subsidy amounts the employee should not have received. Appealing the employee’s receipt of the subsidy now should reduce the likelihood of either of these events happening later. Each letter contains detailed instructions on how to appeal as well as strict deadlines for doing the same. More information is also available on HealthCare.gov.
The exchange appeal process will not resolve disputes over whether the person listed on the notice is a full-time employee or whether the employer is subject to the law. This appeal will help resolve if an employee of any large employer received a subsidy through an exchange while their employer offered them ACA-compliant coverage. Thus, if a large employer receives a notice from an exchange indicating that it may be subject to the penalty, we recommend that the human resource and benefits team carefully consider whether to avail itself of the appeal opportunity.