Question: When should employers appeal the notice of an employee’s subsidized enrollment in the Covered California state exchange?
Compliance Team Response:
What Are the Notices?
These notices are technically referred to as Section 1411 Certifications in the ACA. However, they’re more commonly referred to as Employer Exchange Notices or Covered California Employer Notices.
The notice informs employers that one or more of their employees have been conditionally approved for subsidies (the Advance Premium Tax Credit) to pay for coverage on the exchange (e.g., Covered California).
What Do the Notices Look Like?
There is a sample notice from Covered California.
Why Should Employers Care?
- These notices of employee subsidies for exchange coverage form the basis for triggering the ACA employer mandate pay or play penalties; and
- Employees may have to repay all or a large portion of the subsidies if they were offered affordable coverage that provides minimum value under your plan.
Where Can We Get More Info?
Should the Employer Appeal?
The recommended approach will depend on the employee’s full-time status, whether the employer offered coverage, and whether that coverage was affordable and provided minimum value (MV):
- Full-Time Employee Offered Affordable/MV Coverage by the Employer: Strongly Recommend Appeal
Appealing the subsidy determination will:
- Protect the employer against potential ACA employer mandate pay or play penalties from the IRS (i.e., the A Penalty or the B Penalty under §4980H); and
- Avoid the employee having to repay all or a large portion of the subsidies on his or her individual tax return at the end of the year.
- Full-Time Employee NOT Offered Affordable/MV Coverage by the Employer: Do Not Appeal
In this case, the employee was correctly awarded the subsidy (assuming the employee correctly estimated household income to be within 400% of the federal poverty line—which is not a determination related to the employer). There is nothing to appeal.
This will serve as notice that the employer will be subject to pay or play penalties (via subsequent IRS Letter 226J) as follows:
- Offered coverage to at least 95% of full-time employees: The §4980H(b) penalty, sometimes referred to as the “B Penalty” or the “Tack Hammer Penalty.” The penalty is $290/month ($3,480 annualized) for each month the employee was full-time, not offered coverage, and receiving subsidized coverage on the exchange.
- Did NOT offer coverage to at least 95% of full-time employees: The §4980H(a), sometimes referred to as the “A Penalty” or the “Sledge Hammer Penalty.” The penalty is $193.33/month ($2,320 annualized) multiplied by all full-time employees (reduced by the first 30) for each month the employer failed to offer coverage to at least 95% of full-time employees, and at least one full-time employee was receiving subsidized exchange coverage.
For a full summary of the ACA employer mandate penalties and the ACA affordability determination, see our ABD Compliance Alert: How the 2019 ACA Affordability Increase to 9.86% Affects Employers.
- Part-Time Employee Offered Affordable/MV Coverage: Consider Appeal
The employer does not face potential pay or play penalty liability for part-time employees. However, we still recommend that employers consider appealing to prevent employees from having to repay all or a large portion of the subsidies on their individual tax return at the end of the year.
- Part-Time Employee NOT Offered Affordable/MV Coverage: Do Not Appeal
In this case, the employee was correctly awarded the subsidy (assuming the employee correctly estimated household income to be within 400% of the federal poverty line—which is not a determination related to the employer). There is nothing to appeal, and there are no ACA employer mandate potential pay or play penalties because the employee was part-time.
How Does the Employer Appeal?
The appeal process is handled through healthcare.gov (even for Covered California enrollments): https://www.healthcare.gov/downloads/marketplace-employer-appeal-form.pdf.
If the employer wishes to appeal, it must do so within 90 days of the date of the notice.
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