Do You Have Covered Employees Collecting an ACA Subsidy?

Many employers offer affordable health coverage that meets or exceeds the minimum value requirements of the Affordable Care Act (ACA). However, if one or more of their full-time employees claims the coverage offered was not affordable, minimum value health coverage, the employee could (erroneously) get subsidized coverage on the public health exchange. This would cause problems for applicable large employers (ALEs), who potentially face employer shared responsibility penalties, and for employees, which may have to repay erroneous subsidies.

If an employee does receive subsidized coverage on the public exchange, most employers would want to know about it as soon as possible and appeal the subsidy decision if they believed they were offering affordable, minimum value coverage. There are two ways employers might be notified: (1) by the federally facilitated or state-based exchange or (2) by the Internal Revenue Service (IRS).

Employer notices from exchanges

The notices from the exchanges are intended to be an early-warning system to employers. Ideally, the exchange would notify employers when an employee receives an advance premium tax credit (APTC) subsidizing coverage. The notice would occur shortly after the employee started receiving subsidized coverage, and employers would have a chance to rectify the situation before the tax year ends.

In a set of Frequently Asked Questions issued September 18, 2015, the Center for Consumer Information and Insurance Oversight (CCIIO) stated the federal exchanges will not notify employers about 2015 APTCs and will instead begin notifying some employers in 2016 about employees’ 2016 APTCs. The federal exchange employer notification program will not be fully implemented until sometime after 2016.

In 2016, the federal exchanges will only send APTC notices to some employers and will use the employer address given to the exchange by the employee at the time of application for insurance on the exchange. CCIIO realizes some employer notices will probably not reach their intended recipients. Going forward, the public exchanges will consider alternative ways of contacting employers.

Employers that do receive the notice have 90 days after receipt to send an appeal to the health insurance exchange.

Employers that do not receive early notice from the exchanges will not be able to address potential errors until after the tax year is over, when the IRS gets involved.

Employer notices from IRS

The IRS, which is responsible for assessing and collecting shared responsibility payments from employers, will start notifying employers in 2016 if they are potentially subject to shared responsibility penalties for 2015. Likewise, the IRS will notify employers in 2017 of potential penalties for 2016, after their employees’ individual tax returns have been processed. Employers will have an opportunity to respond to the IRS before the IRS actually assesses any ACA shared responsibility penalties.

Regarding assessment and collection of the employer shared responsibility payment, the IRS states on its website:

An employer will not be contacted by the IRS regarding an employer shared responsibility payment until after their employees’ individual income tax returns are due for that year—which would show any claims for the premium tax credit.

If, after the employer has had an opportunity to respond to the initial IRS contact, the IRS determines that an employer is liable for a payment, the IRS will send a notice and demand for payment to the employer. That notice will instruct the employer how to make the payment.

Bottom line

For 2015, and quite possibly for 2016 and future years, the soonest an employer will hear it has an employee who received a subsidy on the federal exchange will be when the IRS notifies the employer that the employer is potentially liable for a shared responsibility payment for the prior year. The employer will have an opportunity to respond to the IRS before any assessment or notice and demand for payment is made. The “early-warning system” of public exchanges notifying employers of employees’ APTCs in the year in which they receive them is not yet fully operational.