As we have previously noted, many employers, including several of our clients, have received “marketplace notices” from the Department of Health & Human Services (HHS) informing them that one or more of their employees signed up for health coverage through the Federally-Facilitated Marketplace for 2016 and are receiving a tax credit or subsidy in doing so. We continue to feel it is important to appeal the award of any subsidy, since doing so may head off a later penalty assessment by the IRS for failure to offer health coverage as mandated by the Affordable Care Act.
We have observed that a rather wide variety of advice is being offered by employee benefits commentators and experts regarding whether and how to appeal marketplace notices. At one end of the spectrum, some commentators are urging employers not to bother to appeal marketplace notices at all. They point out that HHS does not have the authority to penalize employers for failure to offer medical coverage – correctly noting that only the IRS can assess penalties. So their suggestion is to wait and see whether the IRS assesses a penalty regarding a particular employee. If a penalty is assessed later, then appeal at that time, furnishing whatever detailed information and documents may be necessary to defend against the penalty.
At the other end of the spectrum are those commentators who recommend treating the HHS marketplace notice as if it were an IRS penalty assessment. They recommend responding not only with an explanation of the facts, but with extensive backup documentation to support ACA health plan requirements such as minimum value, affordability and minimum essential coverage. This could include detailed medical plan information; payroll information necessary to support affordability of the coverage and to establish an employee’s part-time or full-time status; employee benefit waivers; and other documentation.
We continue to recommend a middle ground approach. As previously noted we believe an employer should appeal inappropriate subsidy awards (using the mandated appeal form) with a correct statement of the facts. For example, the employee has not been employed during 2016, or is part-time, or was offered coverage but declined, etc. However, in most cases we do not recommend submission of detailed backup documentation, with one exception: if an employee was offered coverage but declined, we suggest sending a copy of the signed waiver of coverage along with the appeal response form.
It is unfortunate that an employer’s appeal of its employee’s tax subsidy tends to pit the interests of employer against employee, i.e., potential employer penalty vs. employee tax break. However, appealing an incorrectly awarded tax credit at an early stage, rather than waiting to see if an IRS penalty is assessed, may mitigate the amount of tax subsidy that the employee may ultimately be required to repay to the IRS.
Finally, don’t be lulled to sleep by the long (90 days) response time permitted by a marketplace notice. We suggest that any marketplace notices be responded to promptly, rather than setting them aside for later action.
If you have any questions regarding appeals of marketplace notices, please feel free to any member of the TBC team. As always, specific fact situations may require you to consult your legal counsel for assistance.