Health Insurance Marketplace Subsidy Notices
Have you received a Health Insurance Marketplace Subsidy Notice (Subsidy Notice) from the Department of Health and Human Services (HHS)? If so, your response may affect whether or not the IRS later assesses a pay or play penalty. This article explains the appropriate way to respond to these notices.
HHS recently began sending Subsidy Notices to employers. The purpose of the Subsidy Notice is to inform employers that an individual—who identified the employer as his or her employer—enrolled in health insurance through the Health Insurance Marketplace and was certified as eligible for an Advanced Payment of Premium Tax Credit (APTC).
Pay or play penalties are potentially triggered when at least one of an applicable large employer’s (ALE) “full-time employees” (as that term is defined under the Affordable Care Act or ACA) receives an APTC.
Subsidy Notices are sent by HHS. Only the IRS can assess a pay or play penalty. So, it is important for employers to understand:
- The Subsidy Notices do not determine whether the employer is subject to a pay or play penalty; and
- Failure to appeal the Subsidy Notice does not preclude the employer from later appealing the assessment of a pay or play penalty by the IRS.
Applicable Large Employer Responses to Subsidy Notices
First and foremost, an employer should not appeal a Subsidy Notice on behalf of an employee for whom the employer did not: (1) offer coverage under its group health plan; or (2) offer coverage that was both affordable and of minimum value.
As explained below, however, employers should carefully consider whether to appeal the Subsidy Notices received on behalf of other employees—especially full-time employees—who were offered coverage under the employer’s group health plan that is both affordable and of minimum value.
Only full-time employees can trigger a pay or play penalty. If an employer receives a Subsidy Notice on behalf of a full-time employee who was offered affordable, minimum value coverage, it may be in the employer’s best interest to appeal the Subsidy Notice. This may allow the employer to “nip in the bud” the issue of a later assessment of a pay or play penalty by the IRS. (Alternatively, if the IRS still assesses a pay or play penalty on behalf of a full-time employee who the employer successfully appealed a Subsidy Notice, the evidence of the successful appeal may be helpful to the employer in contesting the IRS’s assessment of a pay or play penalty.)
It may not only be in the employer’s best interest to appeal the Subsidy Notice—it may also be in the employee’s best interest because the employee may be ineligible for the APTC. In other words, a successful appeal of the Subsidy Notice may also limit the amount of the APTC that the ineligible employee must repay.
A non-full-time employee cannot trigger a pay or play penalty. So, it is unnecessary to appeal a Subsidy Notice received on behalf of a non-full-time employee for purposes of the pay or play penalty.
If an ALE offered a non-full-time employee affordable, minimum value coverage, however, the ALE may want to appeal the Subsidy Notice to limit the amount of the APTC that the employee must repay.
Non-Applicable Large Employer Responses to Subsidy Notices
Non-ALEs (generally employers with less than 50 full-time and full-time equivalent employees) are not subject to the pay or play penalty. So, again, there is no reason for a non-ALE to appeal a Subsidy Notice for pay or play penalty purposes.
But a non-ALE may consider appealing a Subsidy Notice on behalf of an employee who was offered affordable, minimum value coverage, to limit the amount of the APTC that the employee must repay.
How to Appeal the Subsidy Notice
To appeal the Subsidy Notice, an employer should use the form provided by HHS, which is available at healthcare.gov (https://www.healthcare.gov/marketplace-appeals/employer-appeals). This form provides a space for the employer to include a narrative explaining why the employee is ineligible for an APTC. In this narrative, the employer should indicate that the employee was either enrolled in coverage under the employer’s group health plan or that the employee was offered coverage under the employer’s group health plan. The employer should also include the employee’s cost of employee-only coverage under the employer’s lowest-cost group health plan and an affirmative statement that the group health plan provides minimum value.
In addition to the narrative, the employer may include supporting documentation, such as:
- A copy of the election form (or a screenshot from an electronic enrollment platform) showing that the employee is enrolled in the employer’s group health plan, or was offered and waived coverage under the employer’s group health plan.
- If the employee didn’t affirmatively waive coverage, the employer should include plan records showing that the employee was offered coverage but failed to elect coverage under the employer’s group health plan.
- Any materials evidencing the employee’s cost of coverage. (Evidence of satisfying an affordability safe harbor may be helpful, but will not be determinative of actual affordability.)
- Evidence that the employer’s group health plan is of minimum value (e.g., a summary of benefits showing that the group health plan covers at least 60% of eligible expenses).
- A copy of the Subsidy Notice
As a reminder, an ALE’s decision to appeal Subsidy Notices has no bearing on the ALE’s ability to later appeal the IRS’s assessment of a pay or play penalty. But being proactive in appealing Subsidy Notices may prevent the IRS from later assessing a pay or play penalty.
If you have any questions about Subsidy Notices or how you should respond, please contact the author or one of the members of the Health Care Reform Team.