Employers have begun receiving notices from the Health Insurance Marketplace, signaling the potential of an imposed penalty under Internal Revenue Service Code (IRC) Section 4980H. This IRC section addresses failing to offer affordable minimum essential coverage (MEC) that provides minimum value (MV) of at least 60% or a bronze level plan, as mandated by the Affordable Care Act (ACA) for Applicable Large Employers (ALEs).
Clients May – or May Not – Be Liable
Employers could receive these notices for a myriad of different reasons. It’s important to understand the notices do not mean an employer is being fined penalties in the form of excise taxes. The notices simply signal the potential of being fined penalties for noncompliance.
Employers are receiving these notices because at least one of their employees received a premium tax credit (PTC) for purchasing coverage on an Exchange (also known as the Marketplace), and the Exchange has reason to believe the employer might be on the hook for not offering affordable coverage as mandated by the ACA for ALEs.
Five Reasons Your Client May Not Be Liable
There are many reasons employers in receipt of a notice may not be assessed a penalty by the IRS.
1. The employer might not have been considered an ALE and, therefore, would have had no ACA mandates to comply with in the first place.
2. If the employer was indeed an ALE, it might not have offered health insurance to an employee because the employee was in a waiting period.
3. The ALE might not have offered coverage to an employee because the employee was working part-time and, therefore, ineligible for benefits.
4. The ALE might not have been certain of an employee’s full-time or part-time status due to varying hours, so the ALE used an ACA-approved lookback measurement period to determine eligibility (during which the employee in question was not offered coverage).
5. The employee incorrectly told the Marketplace he or she was not offered affordable coverage by the ALE.
These are other possible scenarios, too, where an employer compliantly followed ACA regulations, but may be in receipt of a Marketplace notice.
The notices contain avenues for employers to appeal and provide documentation to dispel the trigger of a potential penalty and rebut potential fines.
The appeal may determine if an employee (and any household members) got help with costs through the Marketplace at the same time their employer offered them affordable health coverage that met the minimum value standard.
Reasons an Employer Could Be Liable
There are many reasons an employer could be on the hook for ACA noncompliance penalties. Some of these reasons are if the firm:
1. Was unaware it was a member of an aggregate/control group under IRC Section 414 (b), (c), (m), or (o), where companies are combined for the purpose of determining group size if they share common ownership – even if the businesses are unrelated with separate tax IDs.
2. Did not offer affordable coverage to “all” of its full-time employees and their dependents.
3. Did not follow ACA mandates with regard to minimal essential coverage (MEC) or the MV standard.
No Liability? File an Appeal
Employers have 90 days from the date stated on the notice from the Marketplace to file an appeal using the Employer Appeal Request Form (PDF) or by writing a letter.
• If your client writes a letter, he or she must include the following information:
– Business name – Employer Identification 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
– The reason for the appeal– Information from the Marketplace notice received, including date and employee information
– Information from the Marketplace notice received, including date and employee information
• The appeal request form or letter and a copy of the Marketplace notice should be mailed or faxed to this address or fax number:
Health Insurance Marketplace
465 Industrial Blvd. London, KY
40750-0061 Fax: 877-369-0131
Remember, an appeal will not determine if an employer has to pay a fee. Only the IRS, not the Exchange/Marketplace or the Marketplace Appeals Center, can determine which employers are subject to a fine.
After an Appeal Is Filed: All future correspondence about the appeal will come from the Marketplace Appeals Center, which is different from the Health Insurance Marketplace.
The employer will get a letter confirming the appeal was received. The letter will also provide a description of the appeals process and instructions for submitting additional materials, if needed.
Resources for You and Your Clients
Word & Brown has developed IRC Section 4980H penalty references for the 2016 tax year and 2017 tax year; both will help you and your employer clients understand the ACA’s employer shared responsibility provision and the associated penalties for noncompliance.
Make sure your clients are calculating their group sizes correctly, so they understand if they are considered ALEs under the ACA for all of 2017. Determination is based on employment statistics for the 2016 calendar year. Refer to the Word & Brown Group Size Calculator for help with this calculation.
To assist your clients in verifying affordability of coverage in 2017, use the Word & Brown Affordability Calculator:
If you have questions, contact your Word & Brown representative – or email the WBCompliance team at ComplianceSupport@wordandbrown.com.