Benefits Insight & Guidance

Transcription

1 MARKETPLACE NOTICES AND APPEALS: WHAT, WHY, WHEN AND HOW? Federal authorities have at last begun to issue notices from HealthCare.gov to employers. The notices identify for employers one or more employees who recently qualified for federally subsidized individual health insurance policies through HealthCare.gov or one of several state-operated online health insurance marketplaces. The notices include both a warning and an invitation: a warning that the IRS may impose Affordable Care Act (ACA) employer mandate tax penalties on the employer and an invitation from the marketplace to appeal its award of subsidies to the employee. AUTHOR ED FENSHOLT, JD Senior Vice President Director of Compliance Services Lockton Benefit Group Federal authorities are sending these marketplace notices regarding employees who enrolled in subsidized individual coverage through HealthCare.gov or through a statebased marketplace in one of the following states: California Maryland How should employers respond? Should they respond at all? What s at risk, if Colorado Massachusetts anything? Why the Notices? District of Columbia Kentucky New York Vermont Employers subject to the ACA s employer mandate may be penalized if one of their full-time employees qualifies for subsidized individual coverage through an online marketplace, like HealthCare.gov. But an employee doesn t qualify for subsidies, and therefore cannot trigger a penalty against the employer, if the employer has offered the employee minimum value and affordable health insurance (we ll call this a qualifying coverage offer ). This is true even if the employee declines the offer. The problem at the root of these marketplace notices to employers is this: When employees apply for marketplace coverage and subsidies, some marketplace coverage applications don t do a great job of explaining the employees ineligibility for subsidies if the employer has made the employees a qualifying coverage offer. Health insurance is considered minimum value if it has an actuarial value of at least 60 percent, meaning the insurance is designed to reimburse at least 60 percent of expected medical expenses. The insurance is considered affordable if the employee-only rate does not cost the full-time employee more than 9.66 percent of his or her household income (basically, adjusted gross income). This percentage is adjusted annually for inflation. L O C K T O N C O M P A N I E S

2 Just as bad, the marketplaces, before awarding subsidies to the employees, don t seek front-end verification from employers about what coverage they offered the employees. Many employees who sought subsidies actually received qualifying coverage offers from their employers but either misrepresented that fact on their marketplace applications or simply failed to understand what the applications were asking. Several other state-based marketplaces, most notably the marketplaces in Vermont, Connecticut, Minnesota, and Washington, have been sending their own employer notices and inviting employers to appeal the grant of subsidies to employees, through those respective marketplaces unique appeal processes. To the extent, then, that an employee is granted subsidies by a marketplace, the subsidies imply one of two things: (1) The employer failed to make a qualifying coverage offer and might be subject to a penalty, or (2) the employee misrepresented the employer s coverage offer and should never have qualified for subsidies in the first place. The marketplace notices are designed to figure out whether either of those implications is accurate. Why You, and Why Now? The ACA requires the marketplaces to notify the employer when an employee makes a claim for subsidies. The notice: Identifies the employee and notes that the employee identified the employer as his or her employer. Notes that the marketplace recently awarded subsidies (health insurance premium tax credits) to the employee because the employee said he or she received no qualifying coverage offer from the employer. Warns the employer that if it failed to offer the employee minimum value and affordable coverage, it might be liable for an employer mandate tax penalty. Invites the employer to appeal the employee s award of subsidies... in essence, to demonstrate that the employer did, in fact, make a qualifying coverage offer. The employer has 90 days to respond, if it wants to respond. To Respond or Not to Respond: Choosing to Not Appeal There are several reasons why an employer might choose to simply ignore a notice. The marketplaces, when sending their notices to employers, mostly want to know whether it s true as the employee said in his or her application that the employer did not make a qualifying coverage offer to the employee. Thus, if the employer didn t offer such coverage, there s no compelling reason to appeal. 2

3 But what if there were legitimate reasons why the employer didn t make a qualifying coverage offer, reasons that excuse the employer from any potential IRS penalty? Perhaps the employee: Wasn t the employer s employee at all, or at least not for some months out of the year. Was part-time. Was receiving coverage through a union health fund to which the employer contributed. Was in a waiting period or an initial measurement period. Didn t receive a qualifying coverage offer but was enrolled in an employmentbased plan, such as a skinny, minimum essential coverage plan not adequately robust to be considered minimum value (this is highly unlikely because the employee, if enrolled in an employer plan, likely won t have sought additional medical coverage in a marketplace). In each of these situations, the employer might not owe an employer mandate tax penalty. But is lodging an appeal with HealthCare.gov or another marketplace a good use of the employer s time? Are the marketplaces the employer s best forum in which to defend its failure to make a qualifying coverage offer? Perhaps more to the point, will winning an appeal with the marketplace prevent the IRS from later asking the employer to prove its coverage offer or its excuse for not making one? More and more, we think the answer is no. Remember that the marketplaces have no authority to levy penalties under the employer mandate. Also, pulling together information to substantiate an appeal will take time and there s a decent chance that in some cases the marketplace will not understand the many nuances under the employer mandate that excuse an employer s failure to offer health insurance. Finally and this might be the most important point it appears that winning a marketplace appeal won t foreclose the IRS from later circling back to the employer anyway, asking it to prove its coverage offer or a reason for not having made one. That s because even if the employer wins its appeal with the marketplace, the marketplace is still going to send the IRS a notice that the employee was awarded subsidies. 3

4 For example, if the marketplace awards subsidies for January through August, the employer proves on appeal that it made a qualifying coverage offer, and the marketplace cancels the subsidies, the IRS is still going to get a notice from the marketplace (Form 1095-A) that it awarded subsidies to the employee. We suspect that will still leave the IRS wondering about the employer s coverage offer, if any, and whether the employer s report of its coverage offer or its excuse for not offering coverage (as reported on Form 1095-C, at least for full-time employees) was accurate. In short, the marketplaces can do no harm to the employer. The IRS might actually be in the best position to understand and accept the employer s explanation for not having made a qualifying coverage offer. And even if the employer wins its marketplace appeal, the IRS might demand the same proof later. To Respond or Not to Respond: Choosing to Appeal Because the IRS has been tight-lipped about precisely how it will reconcile a marketplace s Form 1095-A (showing subsidies awarded to an employee) with an employer s Form 1095-C (perhaps showing a qualifying coverage offer to the employee), it s difficult to say how much winning a marketplace appeal will buy the employer in avoiding addressing the same issues later with the IRS. But if winning a marketplace appeal may not pay worthwhile dividends for the employer, ironically it may pay dividends for the employee, even though winning the appeal may mean the employee loses his or her subsidies. If the employee shouldn t have received subsidies in the first place, the IRS is going to figure that out (it will receive a Form 1095-A from the marketplace, showing the award of subsidies, and a Form 1095-C from the employer, showing the employer s qualifying coverage offer). When that happens, the IRS will look to claw back at least a portion of those subsidies from the employee. If the employer s appeal can convince the marketplace to rescind inappropriate subsidies, the employer will be minimizing the amount that the IRS may later seek to claw back from the employee. How to Respond If an employer decides to appeal, how does it do it? The appeal process differs a bit from marketplace to marketplace, but here are some general rules. Note that, for now, most of these appeals must be handled on paper; although, some marketplaces unfortunately, not yet HealthCare.gov are handling them electronically. The employer has 90 days to appeal, measured from the date on the notice. The employer must include a copy of the marketplace notice. The employer must explain and prove the qualifying coverage offer, if it made one. The employer might also choose to explain why it did not need to make one (e.g., the employee wasn t its employee, was part-time, was in a waiting period, etc.). Generally speaking, most appeals should focus on the fact that the employer made a qualifying coverage offer even though the employee said it didn t. The reasons the employer might not have made an offer are not necessarily relevant to the marketplace, because they re mostly concerned with whether the employee actually received a qualifying coverage offer and should not be receiving subsidies, not whether the employer is excused from penalties. Nevertheless, some marketplace appeal forms actually include boxes to check that indicate the employee was not the employer s employee or was not full-time. 4

5 The HealthCare.gov appeal form simply includes a large box (see the sample form below) in which the employer explains in a narrative fashion that it offered coverage. If the employer didn t offer coverage and wants to explain why, it can do that as well. Here are common examples of explanations: We offered minimum value and affordable coverage that would have been effective on had the employee elected it. This individual was never our employee, or This individual performed services for us but was an employee of ABC Staffing and never our employee. This employee was [a part-time employee] [in a waiting period] [in an initial measurement or initial measurement and administrative period]. We did not offer minimum value and affordable coverage to this employee, but the employee is a member of a collective bargaining unit and we are required by a collective bargaining or participation agreement to make contributions to a health fund providing such coverage to bargaining unit members. We did not offer minimum value and affordable coverage to the employee, but the employee was enrolled in our group health plan providing minimum essential coverage for the period to. The federal government s appeal form looks like this: Employer explains its coverage offer or excuse. 5

6 The appeal, when submitted, should include adequate supporting documentation to demonstrate the qualifying coverage offer or, if the employer has chosen to provide the marketplace with an excuse for not offering coverage, such as the employee s part-time status, documentation to support that excuse. This documentation might include one or more of the following: A declination of coverage, signed by the employee (an actual signed declination form is not necessary to establish that the coverage offer was made, but while it might be the most difficult proof to obtain, it is probably the best proof). A report produced by a benefits administration system showing that the employee received an invitation to enroll. A copy of the enrollment packet provided to the employee. A copy of the summary of benefits and coverage (the eight-page plan summary required by the ACA) for the plan or coverage option offered to the employee. This summary includes a statement regarding the minimum value nature of the plan or option. A copy of the marketplace notice of coverage that the employer gave the employee. This is the notice required under the Fair Labor Standards Act that explains the availability of marketplace coverage if the employer doesn t offer adequate coverage. The notice, if fully completed by the employer, discloses aspects of the employer s coverage offer and eligibility rules and includes representations about the offer s affordability. Employers are required to supply this notice (although there s no federal penalty for failing to do so) shortly after an employee is hired. The Department of Labor offers additional information on this notice. A description of the employee s share of the premium for coverage options offered to him or her. Payroll records showing the employee s compensation (relevant to an affordability analysis) and/or hours (relevant to a full-time employee determination). If the marketplace inquiry happens to pertain to subsidies awarded in a prior year, the Form 1095-C provided to the IRS, reflecting information about the minimum value nature of a coverage offer and its affordability (if the employee was full-time for at least one month during the reporting year). 6

7 I Lost on Appeal! I Am Doomed! Nope, not even a little bit. Remember that the marketplaces have no authority to penalize an employer. If the employer can t convince the marketplace that the employer made a qualifying coverage offer to the employee or that it had a legitimate excuse for not making an offer, the employer lives to fight another day, over that same issue, with the IRS. As noted above, the IRS might actually be more reasonable to deal with. At least, it will be more knowledgeable about the legitimacy of the many excuses an employer may have for not having made a coverage offer to a full-time employee. What Else Should Employers Be Thinking About? We certainly understand employers visceral reaction to a notice from a governmental agency warning that the employer might be penalized and offering an opportunity to appeal. The natural reaction is, Holy cow, let s appeal and try to nip this in the bud! But as we noted above, an appeal even a successful appeal may be of less value to the employer than the employee. If an employer is inclined to play the appeal game, there are some administrative concerns. For employers with multiple worksites, the employee will probably have identified (to the marketplace) his or her worksite address as the employer s address even if the headquarters location or home office is different. Employers will want to ensure that corporate employees in the various field locations recognize these marketplace notices as they arrive and forward them to the appropriate personnel in the home office. Not Legal Advice: Nothing in this should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton s Compliance Services group are not privileged under the attorney-client privilege Lockton, Inc. All rights reserved. g\lbg\health Risk Solutions\Benefits Insight and Guidance\2016\Responding to Health Insurance Marketplace Appeals_Fensholt:20636