July 26, 2016
Within the last three weeks, we have received calls from plan sponsors about letters sent to them from Covered California involving employees who have been granted a Marketplace subsidy. It is worth noting that the Affordable Care Act (ACA) originally permitted federal Marketplaces to issue such letters when the employee/applicant states they were not offered affordable minimum essential coverage (MEC). Recently the rules were expanded to state-run Marketplaces such as Covered California.
- Targeted Employers. Employers with 50 or more full-time employees (or equivalents) must offer healthcare coverage to their full-time employees, which meets the Shared Responsibility requirements set forth in the ACA, or be subject to penalties under IRC Section 4980H. In other words, all employers who are treated as Applicable Large Employers (ALE).
- The Purpose of the Marketplace Letter. These letters result from a Marketplace decision to offer a subsidy toward the cost of coverage on the basis that the ALE does not meet the MEC/affordable/minimum value standards mandated by ACA. The purpose of the letter is to allow ALEs to correct the record in the event they actually meet the Shared Responsibility Rules under IRC Section 4980H(a) or (b), and avoid potential IRS penalties.
- The Caveats:
- Pay attention: Plan sponsors have only 90 days from the Notice Date to respond to the Marketplace letter.
- Failure to respond or to demonstrate compliance with the Shared Responsibility Rules may lead to IRS penalties as described under IRC Section 4980H(a) or (b).
- There may be certain circumstances where the Marketplace offers a subsidy without triggering a penalty. For example, a part-time employee, ineligible for coverage or in a multi-employer (union) plan (based on interim guidance), or the employee qualifies under a safe harbor.
- The Decision. In light of the IRS assessing a penalty, it appears best for the ALE to respond to the Marketplace letter and to correct the errors in the employee’s request for Marketplace coverage. Once the Marketplace receives the employer’s response, it will require the applicant to correct/update his/her application for coverage. If the applicant fails to do so, the Marketplace can assess its own penalties.
We are seeing Marketplace letters with some frequency. It is important that the employer review each letter carefully. If the applicant misstated the facts, the employer should respond in writing to the Marketplace Notice originator. If the applicant is correct (e.g. not affordable) in its application, the employer needs to review its contribution structure and revise it accordingly. Also, if the coverage fails to meet the MEC/affordable/minimum value requirements, address that issue as well. Note that the penalty under 4980H(a) applies to all participants while the 4980H(b) penalty will apply with regard to the individual participant.
For your reference, the following is a link to healthcare.gov regarding the process for filing a response to the Marketplace notice: Employer Appeal Instructions.
Tags: Affordable Care Act, Covered California, minimum essential coverage