Many of your clients undoubtedly have begun receiving love letters from the Department of Health and Human Services’ health insurance marketplace informing them an employee is eligible for exchange subsidies. 

Many of your clients undoubtedly have begun receiving love letters from the Department of Health and Human Services’ health insurance marketplace informing them an employee is eligible for exchange subsidies. This eligibility is determined in part when employees report to the marketplace that they:

  • Did not have an offer of healthcare coverage from their employer
  • Did have an offer of healthcare coverage, but it was not affordable or did not provide minimum value
  • Were in a waiting period and unable to enroll in healthcare coverage through the employer.

The love letter then notes the employer may appeal this decision if the company believes it offered “affordable” coverage and satisfied the “minimum value” standards under the Affordable Care Act.

The notice goes on to clarify that any appeal will not “necessarily affect whether the employer will have to pay” an ACA employer mandate penalty. The IRS, it says, makes that decision.

So how should your client respond—if at all?

If the client is not a “large employer” subject to the ACA’s employer mandate requirements (50 or more full-time employees or equivalents), there likely is no reason to appeal. 

For large employers, however, a successful subsidy determination appeal to the marketplace may avert a potentially more expensive and more cumbersome IRS penalty appeal process. While only the IRS can ultimately determine employer mandate penalties, the marketplace appeal might determine whether the employee was in fact eligible to receive a subsidy. This eligibility is a key factor in determining whether the employer will be subject to a mandate penalty.

Filing a successful appeal might eliminate reports from the marketplace to the IRS that the employee received a subsidy. When full-time employees who claim they did not receive an affordable offer of coverage apply for the subsidy, the rules require the federal marketplace to contact the employer in an effort to verify that representation. If the marketplace does not hear back from the employer, it generally will accept the representation as true.

Given this landscape, we think it advisable for large employers that receive notices and believe they have satisfied the ACA’s coverage requirements to appeal—or at least establish a traceable record for a later IRS appeal.

Employers have 90 days from the date of the notice to appeal with the Marketplace Appeals Center. It may be filed via an online form or a letter.

The Employer Appeal Request Form is here

If your client mails a letter, it should include the following information:

  • Business name
  • Employer ID number (EIN)
  • Employer’s primary contact name, phone number and address
  • Information from the marketplace notice the client received, including the date of the notice and information about the employee covered by the notice
  • The reason for the appeal (an explanation regarding why the employee is not subsidy eligible) and any supporting documentation.

Employers choosing to submit online may be limited to appealing one employee determination at a time. We see no indication, however, that a letter-based appeal could not address multiple employees. That said, employers will have to clearly identify each employee and explain, for each employee, why the offer of coverage met the ACA’s affordability and minimum value requirements.

Following submission, the Appeals Center will notify the affected employee the appeal has been initiated, what the employee’s rights are and how the appeal may affect the employee’s eligibility for subsidies/cost sharing reductions. The Appeals Center may request additional information from the employer or simply send a decision.

Employers subject to a penalty do not need to report it with any tax return. Instead, based on the employer’s information, tax returns and marketplace reports, the IRS will calculate any potential liability.

Employers will not be contacted by the IRS regarding an employer’s shared responsibility payment until after their employees’ individual income tax returns are due, since those returns would show any claims for the premium tax credit. The employer will then have an opportunity to respond before any IRS assessment or notice and demand for payment is made.

The lesson from all of this is simple: clients, particularly large employers, should respond to these government love letters to minimize their mandate-related penalties and expenses.