Authored by Dannae L. Delano
May 10, 2016
Let’s quickly recap the current Affordable Care Act (ACA) compliance landscape. Individuals must have minimum essential health coverage or pay an annual penalty. State and federal health exchanges will make subsidies available to qualified individuals whose employers do not offer them affordable, minimum value coverage and who meet certain income thresholds. Applicable large employers (50 or more full-time and full-time equivalent employees in the prior calendar year) must offer affordable, minimum value coverage to 95% or more of their full-time employees or pay penalties. Those same employers must report certain information both to employees and the IRS on Forms 1094 and 1095. The Internal Revenue Service (IRS) will utilize Forms 1094 and 1095 to:
• Verify individual subsidy eligibility;
• Enforce the individual mandate; and
• Enforce the employer mandate.
Those are the general rules, but who are the players and what roles do they play in the game? First, we have the enforcers—federal government agencies with defined responsibilities related to ACA compliance.
• The IRS will determine if individuals and employers are subject to fines and will determine if reconciliation of subsidies granted to ineligible individuals is necessary.
• The Centers for Medicare and Medicaid Services (CMS) will conduct income and employment verification for individuals applying for exchange-based coverage, verify employer-sponsored coverage, if any, and generally, oversee and administer state and federal exchanges.
• The Department of Health and Human Services (HHS) issues the regulations governing the subsidy appeals process and is responsible for administering appeals for both the federal and state exchanges.
Next, we have the pawns subject to the mandates—individuals mandated to obtain coverage and employers mandated to provide coverage to full-time employees. Individuals are potentially eligible for subsidies for exchange-based coverage and attest to important information required in the coverage application process. Employers are notified if an individual who is an employee receives a subsidy. Employers have a right to appeal subsidies awarded to individual employees and are burdened with proving their own compliance once a subsidy is granted to an individual employee. Interestingly, while some states have their own appeal processes, the federal exchanges will be responsible for 90% of the notifications and appeals for 2016.
The significance of an employer understanding its role in this game is vital because employer penalties are only assessed if individual employees are granted a subsidy for exchange-based coverage. The course of the game is fairly simple: individuals apply for coverage and subsidies are granted based on information given by the individuals. Next, employers are notified of a subsidy award and have the opportunity to appeal. Employers then report coverage information to the IRS. Finally, the IRS issues penalties to noncompliant individuals and noncompliant employers. If an employer does not utilize its opportunity to appeal, this can significantly impact the reconciliation of subsidies to individuals and the assessment of penalties against employers. The current rules allow employers one opportunity to appeal within 90 days of notification of a subsidy being granted to an individual employee who enrolls in exchange-based coverage. The federal exchange expects a June 1, 2016 release date for subsidy notifications. Connecticut, Maryland, Minnesota, and Washington are currently issuing their own subsidy notifications.
Wild Cards: there are already significant problems that have been identified for employers. First, the notifications are generated with individual employee-provided information that will NOT be verified. Consequently, employers with multiple locations could receive subsidy notifications at any mailing address of its locations. Notices will be both batched and sent individually so it will be difficult for an employer to control and process within the 90-day appeal period. Notifications frequently have little to no identifying information other than the individual employee’s name. Imagine receiving a notification for Joe Smith and determining which of your employees that is when you have several Joe Smiths working for your company.
Paper appeals are utilized for 2016, and forms are available online. Unfortunately, the forms are frequently being updated so employers must check the online forms frequently to ensure the right forms are being utilized. HHS appeal responses are inconsistent and difficult to manage. Finally, uncertainty surrounding the IRS penalty assessment (which may occur more than a year following the subsidy notification) means employers must decide whether or not to appeal a subsidy award before knowing the impact that award would have on its future penalty assessment.
An employer needs to take action to understand its appeal rights and the appeals process. Then, to avoid future penalty assessments, an employer must appeal subsidies that were erroneously awarded based on individual employee-provided information. Employers need to train responsible staff on how to identify subsidy notifications, assess whether or not to appeal, and handle HHS appeal responses or utilize and manage third parties handling those responsibilities.