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The next ACA compliance hurdle employers are set to face is managing subsidy notifications and appeals. Many exchanges recently began mailing out notifications this summer and it’s important for employers to make sure they’re prepared to manage the process. Why? Well, subsidies—also referred to as Advanced Premium Tax Credits, are a trigger for employer penalties. If you fail to offer coverage to an eligible employee and the employee receives a subsidy, you may be liable for a fine.
If an employee receives a subsidy, you’ll receive a notice. This is where things can get complicated. You need to ensure that the notifications go directly to the correct person or department as soon as possible, because you (the employer) only have 90 days from the date on the notification to respond. And rounding up these notices may not be so easy. For example, your employee may not have put the right employer address on their exchange / marketplace application. Most often, employees will list the address of the location where they work, not necessarily the address where the notification should go, like your headquarters or HR department. If the employee is receiving a subsidy but put a wrong address or did not put any address for their employer, you will not even receive a notice about that employee.
Once you receive the notification, you must decide whether or not you want to appeal the subsidy. If you offered minimum essential coverage (MEC) to the employee who received a subsidy and it met both the affordability and minimum value requirements, you should consider appealing.
You may think that appealing a subsidy and potentially getting in the way of your employee receiving a tax credit could create complications. Believe it or not, you may actually be doing your employee a favor. If an employee receives a subsidy when they weren’t supposed to, they’ll likely have to repay some (or all) of the subsidy amount back when they file their taxes. Your appeal can help minimize the chance of this happening since they will learn sooner rather than later that they didn’t qualify for the subsidy. Plus, the appeal can help prevent unnecessary fines impacting your organization by showing that qualifying coverage was in fact offered.
If you have grounds to appeal, you can complete an Employer Appeal Request Form and submit it to the appropriate exchange / marketplace (Note: this particular form is intended to appeal subsidies through the Federal exchange). The form will ask for information about your organization, the employee whose subsidy you’re appealing, and why you’re appealing it. Once sent, the exchange will notify both you and the employee when the appeal was received.
Next, the exchange will review the case and make a decision. In some cases, the exchange may choose to hold a hearing. Once a decision is made, you and your employee will be notified. But it doesn’t necessarily end there. Your employee will have an opportunity to appeal the exchange’s decision with the Department of Health and Human Services (HHS). If HHS decides to hold a hearing, you may be called to testify. In this situation, HHS will review the case and make a final decision. If HHS decides that the employee isn’t eligible for the subsidy, then the employee may have to repay the subsidy amount for the last few months. On the other hand, if the HHS decides the employee is eligible for the subsidy, it will be important for you to keep your appeal on file since this can potentially result in a fine from the IRS later in the year.
Sound complicated? It certainly can be. Managing subsidies and appeals could quickly add up to a substantial time investment, and if handled improperly you could see additional impacts to your bottom line in the form of fines. Handling subsidy notifications and appeals properly up front can lead to fewer fines down the road, benefiting both you and your employees.
In a 6-3 decision handed down June 25th by the U.S. Supreme Court, the IRS was authorized to issue regulations extending health insurance subsidies to coverage purchased through health insurance exchanges run by the federal government or a state (King v. Burwell, No. 14-114 ).
This means employers cannot avoid employer shared responsibility penalties under IRC section 4980H (“Code § 4980H”) with respect to an employee solely because the employee obtained subsidized exchange coverage in a state that has a health insurance exchange set up by the federal government instead of by the state. It also means that President Barack Obama’s 2010 health care reform law will not be unraveled by the Supreme Court’s decision in this case. The law’s requirements applicable to employers and group health plans continue to apply without change.
What Was the Case About?
IRC section 36B (“Code § 36B”), created by the Patient Protection and Affordable Care Act of 2010 (“ACA”), provides that an individual who buys health insurance “through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act” (emphasis added) generally is entitled to subsidies unless the individual’s income is too high. Thus, the words of the statute conditioned one’s right to an exchange subsidy on one’s purchase of ACA coverage in a state run exchange.
Since 2014, an individual who fails to maintain health insurance for any month generally is subject to a tax penalty unless the individual can show that no affordable coverage was available. The law defines affordability for this purpose in such a way that, without a subsidy, health insurance would be unaffordable for most people.
The plaintiffs in King, residents of one of the 34 states that did not establish a state run health insurance exchange argued that if subsidies were not available to them, no health insurance coverage would be affordable for them and they would not be required to pay a penalty for failing to maintain health insurance. The IRS, however, made subsidized federal exchange coverage available to them similar to coverage in a state run exchange.
It is ACA § 1311 that established the funding and other incentives for “the States” to each establish a state-run exchange through which residents of the state could buy health insurance. Section 1311 also provides that the Secretary of the Treasury will appropriate funds to “make available to each State” and that the “State shall use amounts awarded for activities (including planning activities) related to establishing an American Health Benefit Exchange.” Section 1311 describes an “American Health Benefit Exchange” as follows:
Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an “Exchange”) for the State that (A) facilitates the purchase of qualified health plans; (B) provides for the establishment of a Small Business Health Options Program and © meets [specific requirements enumerated].
An entirely separate section of the ACA provides for the establishment of a federally-run exchange for individuals to buy health insurance if they reside in a state that does not establish a 1311 exchange. That section – ACA § 1321 – withholds funding from a state that has failed to establish a 1311 exchange.
Notwithstanding the statutory language Congress used in the ACA (i.e., literally conditioning an individual’s eligibility subsidized exchange coverage on the purchase of health insurance through a state’s 1311 exchange), the Supreme Court determined that the language is ambiguous. Having found that the text is ambiguous, the Court stated that it must determine what Congress really meant by considering the language in context and with a view to the placement of the words in the overall statutory scheme.
When viewed in this context, the Court concluded that the plain language could not be what Congress actually meant, as such interpretation would destabilize the individual insurance market in those states with a federal exchange and likely create the “death spirals” the ACA was designed to avoid. The Court reasoned that Congress could not have intended to delegate to the IRS the authority to determine whether subsidies would be available only on state run exchanges because the issue is of such deep economic and political significance. The Court further noted that “had Congress wished to assign that question to an agency, it surely would have done so expressly” and “[i]t is especially unlikely that Congress would have delegated this decision to the IRS, which has no expertise in crafting health insurance policy of this sort.”
What Now?
Regardless of whether one agrees with the Supreme Court’s King decision, the decision prevents any practical purpose for further discussion about whether the IRS had authority to extend taxpayer subsidies to individuals who buy health insurance coverage on federal exchanges.
The ACA’s next major compliance requirements for employers: Employers with fifty or more fulltime and fulltime equivalent employees need to ensure that they are tracking hours of service and are otherwise prepared to meet the large employer reporting requirements for 2015 (due in early 2016) ). Employers of any size that sponsor self-funded group health plans need to ensure that they are prepared to meet the health plan reporting requirements for 2015 (also due in early 2016). All employers that sponsor group health plans also should be considering whether and to what extent the so-called Cadillac tax could apply beginning in 2018.