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The Departments of the Treasury, Labor, and Health and Human Services (the Departments) released information regarding the individual coverage HRA (ICHRA) notice requirements earlier this year.
The notice, which must be sent to all eligible employees 90 days before the benefit is offered, is primarily intended to inform eligible employees of how the ICHRA affects premium tax credits. This information will help employees make an informed decision on whether to participate in the ICHRA or opt out. It also notifies employees that a benefit is being offered and what they can expect from the ICHRA.
This highlights everything your ICHRA notice needs to include so that you’re offering the benefit in a compliant way.
When offering an ICHRA an employer must provide a notice including the following:
Note: Per the Departments, for ERISA-covered plans, other disclosure requirements may require participants to be provided with a reasonable opportunity to become informed of their rights and obligations under the ICHRA.
For new ICHRAs, including those starting January 1, 2020, businesses must adhere to a 90-day notice requirement. That means that 90 days before the ICHRA’s start date, they must send employees a notice including each of the components above and notifying them of their eligibility for the benefit. For a plan starting on January 1, 2020, businesses must provide notice to employees on or before October 3, 2019.
The 90-day notice must provided every year your business chooses to offer the ICHRA.
For newly eligible employees (newly hired employees or employees who gain eligibility after the initial start of the plan year), the timing is different. Your business can provide the notice up until the first day the employee’s ICHRA coverage begins. It’s best to provide notice as soon as possible, so the employee has ample time to review coverage options and enroll in a plan.
The Departments have provided a model notice that employers can use as a template for their notice. It’s not required that you use the model, but the Departments have advised use of the model is sufficient for good faith compliance of the requirements as long as it’s provided within the correct time frame. Whether you use the model or not, be sure to include each of the requirements listed above and send the notice within the 90-day notice period.
The Affordable Care Act (ACA) established Health Insurance Marketplaces (also called Exchanges) where individuals can shop and enroll in health coverage. Individuals who meet certain criteria are eligible for premium subsidies and cost-sharing reductions for coverage on the Marketplace.
For the first time, in 2016 some employers will receive a notice from a Marketplace indicating that one of their employees signed up for health coverage through the Marketplace and received advanced premium subsidies. Many employers are asking what these notices mean and what actions they should take if they receive one.
Premium subsidies and cost-sharing reductions are designed to expand healthcare coverage by making insurance, and its utilization, more affordable. Premium subsidies, more accurately referred to as a premium tax credit, are claimed on an individual’s income tax return at the end of the year. What is unique about this tax credit is that an individual can choose to have the expected premium tax credit advanced throughout the year, in which case the government makes payments directly to the health insurer on the individual’s behalf. Importantly, individuals who have access to health coverage through an employer that is affordable and meets minimum value are not eligible to receive the premium tax credit or advances of the premium tax credit for their coverage.
The ACA generally requires that applicable large employers – generally employers with 50 or more full-time employees, including full-time equivalents – offer health coverage that is affordable and of minimum value to their full-time employees (and their dependents) or face an Internal Revenue Service (IRS) tax. This is often referred to as the employer “pay or play” or employer mandate provision. Tax liability under this employer provision is triggered if one of the employer’s full-time employees receives a premium tax credit and the amount of the tax liability is determined by the number of full-time employees who received the premium tax credit.
During the Marketplace application process, individuals are asked a host of questions, including questions about access to health coverage through an employer. If the Marketplace determines that the individual does not have access through an employer to coverage that is affordable and meets the required minimum value, and assuming the individual meets other eligibility criteria, advance payments of the premium tax credit can begin.
In such an instance, the Marketplace is required to send the employer a Marketplace notice. This will be the first year the Federally Facilitated Marketplace (FFM) is sending out these notices. It is worth noting that there is not a commitment to send a notice to all employers, and the FFM has said it can send a notice only if the individual provides a complete employer address. Consequently, some employers expecting Marketplace notices may not receive them and notices may not be mailed to the preferred employer address.
The Marketplace notices will give employers advance warning that they may have potential tax liability under the employer mandate of the ACA. However, there are reasons that receiving a notice does not necessarily mean the IRS will be in hot pursuit, including:
The FFM recently posted a sample of its 2016 notice which can be found here.
Please note that the notice suggests that employers should call the IRS for more information if they have questions, however, IRS telephone assistors will be unable to provide information on the Marketplace process, including the appeals process, and will be unable to tell an employer whether they owe a tax under the employer mandate.
An employer who receives a Marketplace notice may want to appeal the decision that the individual was not offered employer coverage that was affordable and of minimum value. An employer has 90 days from the date of the notice to file an appeal, which is made directly to the Marketplace. Importantly, the IRS will independently determine whether an employer has a tax liability, and the employer will have the opportunity to dispute any proposed liability with the IRS. Similarly, an individual will have the opportunity to challenge an IRS denial of premium tax credit eligibility. Any contact by the IRS, however, will occur late in the game after the year’s tax liabilities have already been incurred. Therefore, although an appeal is not required, it may be advisable.
Regardless of whether an employer pursues an appeal, an employer, particularly one that offers affordable, minimum value health coverage, should communicate to its employees about its offering. Although an applicable large employer is required to furnish IRS Form 1095-C to full-time employees detailing the employer’s offer, a better option is providing employees with information before they enroll in Marketplace coverage.
In summary, the Marketplace notice serves as an advance warning that either the employer or the employee may have a tax liability. Given this exposure, employers should review Marketplace notices and their internal records and consider taking action.
Beginning in Spring 2016, the Affordable Care Act (ACA) Exchanges/Marketplaces will begin to send notices to employers whose employees have received government-subsidized health insurance through the Exchanges. The ACA created the “Employer Notice Program” to give employers the opportunity to contest a potential penalty for employees receiving subsidized health insurance via an Exchange.
The notices will identify any employees who received an advance premium tax credit (APTC). If a full-time employee of an applicable large employer (ALE) receives a premium tax credit for coverage through the Exchanges in 2016, the ALE will be liable for the employer shared responsibility payment. The penalty if an employer doesn’t offer full-time equivalent employees (FTEs) affordable minimum value essential coverage is $2,160 per FTE (minus the first 30) in 2016. If an employer offers coverage, but it is not considered affordable, the penalty is the lesser of $3,240 per subsidized FTE in 2016 or the above penalty. Penalties for future years will be indexed for inflation and posted on the IRS website. The Employer Notice Program does provide an opportunity for an ALE to file an appeal if employees claimed subsidies they were not entitled to.
The first batch of notices will be sent in Spring 2016 and additional notices will be sent throughout the year. For 2016, the notices are expected to be sent to employers if the employee received an APTC for at least one month in 2016 and the employee provided the Exchange with the complete employer address.
Last September, the Centers for Medicare and Medicaid Services (CMS) issued FAQs regarding the Employer Notice Program. The FAQs respond to several questions regarding how employers should respond if they receive a notice that an employee received premium tax credits and cost sharing reductions through the ACA’s Exchanges.
Employers will have an opportunity to appeal the employer notice by proving they offered the employee access to affordable minimum value employer-sponsored coverage, therefore making the employee ineligible for APTC. An employer has 90 days from the date of the notice to appeal. If the employer’s appeal is successful, the Exchange will send a notice to the employee suggesting the employee update their Exchange application to reflect that he or she has access or is enrolled in other coverage. The notice to the employee will further explain that failure to provide an update to their application may result in a tax liability.
Although CMS has provided these guidelines to apply only to the Federal Exchange, it is likely that the state-based Exchanges will have similar notification programs.
Employers should prepare in advance by developing a process for handling the Exchange notices, including appealing any incorrect information that an employee may have provided to the Exchange. Advance preparation will enable you to respond to the notice promptly and help to avoid potential employer penalties.
Congress and the IRS were busy changing laws governing employee benefit plans and issuing new guidance under the ACA in late 2015. Some of the results of that year-end governmental activity include the following:
The PATH Act, enacted by Congress and signed into law on December 18, 2015, made some the following changes to federal statutory laws governing employee benefit plans:
On December 16, 2015, the IRS issued Notice 2015-87, providing guidance on employee accident and health plans and employer shared-responsibility obligations under the ACA. Guidance provided under Notice 2015-87 applies to plan years that begin after the Notice’s publication date (December 16th), but employers may rely upon the guidance provided by the Notice for periods prior to that date.
Notice 2015-87 covers a wide-range of topics from employer reporting obligations under the ACA to the application of Health Savings Account rules to rules for identifying individuals who are eligible for benefits under plans administered by the Department of Veterans Affairs. Following are some of the highlights from Notice 2015-87, with a focus on provisions that are most likely to impact non-governmental employers.
The Patient Protection and Affordable Care Act (the “ACA”) adds a new Section 4980H to the Internal Revenue Code of 1986 which requires employers to offer health coverage to their employees (aka the “Employer Mandate”). The following Q&As are designed to deal with commonly asked questions. These Q&As are based on proposed regulations and final regulations, when issued, may change the requirements.
Question 1: What Is the Employer Mandate?
On January 1, 2014, the Employer Mandate will requiring large employers to offer health coverage to full-time employees and their children up to age 26 or risk paying a penalty. These employers will be forced to make a choice:
This “play or pay” system has become known as the Employer Mandate. The January 1, 2014 effective date is deferred for employers with fiscal year plans that meet certain requirements.
Only “large employers” are required to comply with this mandate. Generally speaking, “large employers” are those that had an average of 50 or more full-time or full-time equivalent employees on business days during the preceding year. “Full-time employees” include all employees who work at least 30 hours on average each week. The number of “full-time equivalent employees” is determined by combining the hours worked by all non-full-time employees.
To “play” under the Employer Mandate, a large employer must offer health coverage that is:
This includes coverage under an employer-sponsored group health plan, whether it be fully insured or self-insured, but does not include stand-alone dental or vision coverage, or flexible spending accounts (FSA).
Coverage is considered “affordable” if an employee’s required contribution for the lowest-cost self-only coverage option does not exceed 9.5% of the employee’s household income. Coverage provides “minimum value” if the plan’s share of the actuarially projected cost of covered benefits is at least 60%.
If a large employer does not “play” for some or all of its full-time employees, the employer will have to pay a penalty, as shown in following two scenarios.
Scenario #1- An employer does not offer health coverage to “substantially all” of its full-time employees and any one of its full-time employees both enrolls in health coverage offered through a State Insurance Exchange, which is also being called a Marketplace (aka an “Exchange”), and receives a premium tax credit or a cost-sharing subsidy (aka “Exchange subsidy”).
In this scenario, the employer will owe a “no coverage penalty.” The no coverage penalty is $2,000 per year (adjusted for inflation) for each of the employer’s full-time employees (excluding the first 30). This is the penalty that an employer should be prepared to pay if it is contemplating not offering group health coverage to its employees.
Scenario #2- An employer does provide health coverage to its employees, but such coverage is deemed inadequate for Employer Mandate purposes, either because it is not “affordable,” does not provide at least “minimum value,” or the employer offers coverage to substantially all (but not all) of its full-time employees and one or more of its full-time employees both enrolls in Exchange coverage and receives an Exchange subsidy.
In this second scenario, the employer will owe an “inadequate coverage penalty.” The inadequate coverage penalty is $3,000 per person and is calculated, based not on the employer’s total number of full-time employees, but only on each full-time employee who receives an Exchange subsidy. The penalty is capped each month by the maximum potential “no coverage penalty” discussed above.
Because Exchange subsidies are available only to individuals with household incomes of at least 100% and up to 400% of the federal poverty line (in 2013, a maximum of $44,680 for an individual and $92,200 for a family of four), employers that pay relatively high wages may not be at risk for the penalty, even if they fail to provide coverage that satisfies the affordability and minimum value requirements.
Exchange subsidies are also not available to individuals who are eligible for Medicaid, so some employers may be partially immune to the penalty with respect to their low-wage employees, particularly in states that elect the Medicaid expansion. Medicaid eligibility is based on household income. It may be difficult for an employer to assume its low-paid employees will be eligible for Medicaid and not eligible for Exchange subsidies as an employee’s household may have more income than just the wages they collect from the employer. But for employers with low-wage workforces, examination of the extent to which the workforce is Medicaid eligible may be worth exploring.
Exchange subsidies will also not be available to any employee whose employer offers the employee affordable coverage that provides minimum value. Thus, by “playing” for employees who would otherwise be eligible for an Exchange subsidy, employers can ensure they are not subject to any penalty, even if they don’t “play” for all employees.