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Many Applicable Large Employers (ALE’s) have already started received Letter 226J from the IRS that indicates their proposed assessment of a penalty under the Employer Shared Responsibility provision of the Patient Protection and Affordable Care Act (ACA).
Letter 226J outlines several things for the ALE receiving it. The letter will tell the ALE what the proposed penalty assessment could be and will also state whether the assessment is based on an “A” or “B” Penalty. An “A” Penalty is assessed when at least one full-time employee is provided a premium tax credit when the employee obtains coverage in the healthcare marketplace exchange. An ALE may be subject to a “B” Penalty if employees decline substandard coverage (aka coverage offered is not affordable) offered by the ALE and then receive a tax credit when obtaining coverage from the marketplace exchange. The letter also provides a list to the ALE of the full-time employees that received a premium tax credit and therefore created the potential for a penalty under the ACA.
It is very important for ALE’s to respond to Letter 226J and do so in a timely manner. The IRS provides 30 days, from the date of issuance, for ALE’s to respond, and if no response is made by the ALE, the IRS will conclude the employer does not disagree with the proposed assessment. ALE’s should not assume that because they received a letter that they will owe a penalty or that the amount outlined in the letter is the amount they will ultimately pay to the IRS for non-compliance with the ACA. Additionally, if no response is made to the IRS, the IRS will demand payment by issuing notice CP 220J. Only once the notice and demand for payment is received is the ALE required to make the penalty payment. Letter 226J is not requesting any payment but is giving ALE’s the chance to respond/disagree with the decision initially made by the IRS & Marketplace.
Letter 226J clearly outlines instructions on how to respond to the letter if the ALE feels that it is not liable for the proposed penalty. ALE’s will complete Form 14764 responding to the IRS that it does not agree with the penalty determination. The ALE will provide the IRS with a signed statement explaining why it does not agree with the determination. Any supporting documentation should be provided to the IRS (for example, records indicating dates of termination of employees, proof that the ALE offered coverage to full-time employees) and any other information requested in Letter 226J. The ALE should also make any changes to the Employee Premium Tax Credit (PTC) Listing that was enclosed with Letter 226J. The Employee PTC Listing (Form 14765) will be included with Letter 226J and Form 14764 (ESRP Response). The Employee PTC Listing identifies each employee who received a PTC by month and also the line 14 and line 16 indicator codes that were provided on the employee’s 1095-C form. If the ALE provided the incorrect indicator codes on form 1095-C, the Employee PTC Listing provides a line for the ALE to correct the codes used.
Once the IRS receives the response to Letter 226J, it will acknowledge that it has received the response by sending the ALE a version of Letter 227. There are 5 versions of Letter 227, and the ALE will receive the appropriate version, acknowledging receipt of their response and an outline of any further action that may be required.
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.
Many employers offer affordable health coverage that meets or exceeds the minimum value requirements of the Affordable Care Act (ACA). However, if one or more of their full-time employees claims the coverage offered was not affordable, minimum value health coverage, the employee could (erroneously) get subsidized coverage on the public health exchange. This would cause problems for applicable large employers (ALEs), who potentially face employer shared responsibility penalties, and for employees, which may have to repay erroneous subsidies.
If an employee does receive subsidized coverage on the public exchange, most employers would want to know about it as soon as possible and appeal the subsidy decision if they believed they were offering affordable, minimum value coverage. There are two ways employers might be notified: (1) by the federally facilitated or state-based exchange or (2) by the Internal Revenue Service (IRS).
Employer notices from exchanges
The notices from the exchanges are intended to
be an early-warning system to employers. Ideally, the exchange would notify
employers when an employee receives an advance premium tax credit (APTC) subsidizing
coverage. The notice would occur shortly after the employee started receiving
subsidized coverage, and employers would have a chance to rectify the situation
before the tax year ends.
In a set of Frequently Asked Questions issued September 18, 2015, the Center for Consumer Information and Insurance Oversight (CCIIO) stated the federal exchanges will not notify employers about 2015 APTCs and will instead begin notifying some employers in 2016 about employees’ 2016 APTCs. The federal exchange employer notification program will not be fully implemented until sometime after 2016.
In 2016, the federal exchanges will only send APTC notices to some employers and will use the employer address given to the exchange by the employee at the time of application for insurance on the exchange. CCIIO realizes some employer notices will probably not reach their intended recipients. Going forward, the public exchanges will consider alternative ways of contacting employers.
Employers that do receive the notice have 90 days after receipt to send an appeal to the health insurance exchange.
Employers that do not receive early notice from the exchanges will not be able to address potential errors until after the tax year is over, when the IRS gets involved.
Employer notices from IRS
The IRS, which is responsible for assessing and
collecting shared responsibility payments from employers, will start notifying
employers in 2016 if they are potentially subject to shared responsibility
penalties for 2015. Likewise, the IRS will notify employers in 2017 of
potential penalties for 2016, after their employees’ individual tax returns
have been processed. Employers will have an opportunity to respond to the IRS
before the IRS actually assesses any ACA shared responsibility penalties.
Regarding assessment and collection of the employer shared responsibility payment, the IRS states on its website:
An employer will not be contacted by the IRS regarding an employer shared responsibility payment until after their employees’ individual income tax returns are due for that year—which would show any claims for the premium tax credit.
If, after the employer has had an opportunity to respond to the initial IRS contact, the IRS determines that an employer is liable for a payment, the IRS will send a notice and demand for payment to the employer. That notice will instruct the employer how to make the payment.
For 2015, and quite possibly for 2016 and future years, the
soonest an employer will hear it has an employee who received a subsidy on the
federal exchange will be when the IRS notifies the employer that the employer
is potentially liable for a shared responsibility payment for the prior year.
The employer will have an opportunity to respond to the IRS before any
assessment or notice and demand for payment is made. The “early-warning system”
of public exchanges notifying employers of employees’ APTCs in the year in
which they receive them is not yet fully operational.
Form 1095-A is a tax form that will be sent to consumers who have been enrolled in health insurance through the Marketplace in the past year. Just like employees receive a W-2 from their employer, consumer who had a plans on the Marketplace will also receive form 1095-A from the Marketplace, which they will need for taxes. Similar to how households receive multiple W-2s if individuals have multiple jobs, some households will get multiple Form 1095-As if they were covered under different plans or changed plans during the year. The 1095-A forms will be mailed direct to consumer’s last known home address provided to the Marketplace and will be postmarked by February 2, 2015.
Form 1095-A provides information to consumers that is needed to complete Form 8962, Premium Tax Credit (PTC). The Marketplace has also reporting this information to the IRS. Consumers will file Form 8962 with their tax returns if they want to claim the premium tax credit or if they received premium assistance through advance credit payments made to their insurance provider.
With Congress in its summer recess, now is a good time to reflect on the top ACA issues worth monitoring as 2015 quickly approaches. Here are a handful of key issues to watch:
Dueling Court Cases on Federal Subsidies
One issue grabbing national headlines is the dueling decisions coming out of the U.S. Court of Appeals for the District of Columbia (Halbig v. Burwell) and the U.S. Court of Appeals for the Fourth Circuit (King v. Burwell) on missing language in the ACA that would have authorized the federal government to provide premium subsidies to individuals who sign up for health plans through the federal Exchanges. The legal issue in these court cases is whether the ACA premium tax credit (aka subsidy) is available to those individuals who enroll in qualified health plans (QHP) through state operated Exchanges or if it is available only to those to enroll in a QHP through a federally funded Exchange.
A primary concern is that a significant number of people in about two-thirds of the states (who did not set up a state-run Exchange) rely on the subsidy to purchase a plan in the federal Exchange. Specifically, the ACA’s employer mandate penalty of $3000 is based upon an employer having an employee seek coverage through an Exchange and receive the federal premium subsidy. In general, the employer mandate requires that “applicable large employers” offer their full-time employees minimum essential coverage or potentially pay a tax penalty. However, according to the statutory text of the ACA, the penalties under the employer mandate are triggered only if an employee receives a subsidy to purchase coverage through an Exchange established by the states. Both cases are being appealed to higher courts and will likely be consolidated into one case to be heard by the U.S. Supreme Court in the not so distant future.
In an interesting development, a video surfaced last week featuring one of the ACA’s chief architects (John Gruber) saying that health insurance subsidies should only be available in those states who opt to build and implement state-based Exchanges to gain participation. The idea was to create an incentive to have states actively involved in the hosting of an Exchange, rather than relying on the federal government to operate the Exchanges in each state. Whether this video will be used as evidence to uphold the argument that subsidies can only be offered by state-based Exchanges remains to be seen.
Lack of Back End Software for Federal Exchange
Of course, one of the big news stories in 2013 and early 2014 was the substandard launch of the federal Exchange, which led to many Americans having to wait to be enrolled in an ACA-compliant health plan. Although some technical snafus have been addressed, there are many that still remain. For example, a top White House official recently told Congress that the automated system that is supposed to send premium payments to insurance companies is still under development, and they did not have a completion date for it yet. The lack of an electronic verification process is only one part of the “backend” software that is still problematic five years after PPACA was passed.
Future of Navigators in Comparison with the Value of Brokers
Several recent studies have touted the benefits of using third parties, such as Brokers, to help consumers find coverage under the ACA. Some of these studies have focused on the usefulness of using Brokers/Agents over the benefits of using Navigators. A recent Urban Institute study found that health insurance Brokers were the most helpful in providing health insurance Exchange information when compared to other types of resources, including Navigators and website content. However, there are other published studies showcasing how Navigators have been useful to consumers. That being said, Brokers have assumed an integral role supporting millions of Americans in securing and maintaining coverage for many decades, and continue to be knowledgeable resources, as they are licensed in the states they operate in, whereas Navigators are not required to meet the same licensing standards as Brokers/Agents. It will be interesting to see what the future holds for Navigators, who are not as experienced and who are, in the end, dependent upon federal grants to provide their services.
Provider Access Issues & Emergency Room Over-Usage
A number of public policymakers have raised concerns recently about the fact that there are shortages of key physicians and other providers and as a result is causing a increase in non-emergent patient visits to expensive ER departments. A recent story in the New York Times highlighted similar concerns, saying the ACA cannot change the fact that visiting an emergency room may be easier than seeing a primary care physician in some instances or locations. Other stories and studies highlight how the ACA and health care reform initiatives can affect access to providers in many different ways, such as changing reimbursement levels, improving the availability of certain types of specialists, or re-educating the patient to move from visiting the ER department to either making an appointment ahead-of-time or visiting a less expensive Urgent Care center for care.
Premium Rate Increases
Another critical issue to monitor are premium increases that might be occurring in spite of the initial promises that the ACA would lower health care costs. Health plans have begun publishing proposed rates for 2015, resulting in a recent flurry of news articles and reports addressing the impact of the ACA on insurance premiums.
The Wall Street Journal published a front page report discussing the ACA’s impact on premium increases earlier this summer, saying, “Hundreds of thousands of consumers nationwide, who bought insurance plans under the Affordable Care Act, will face a choice this fall: swallow higher premiums to stay in their plans or save money by switching.”
The Journal goes on to say that a new picture is emerging in 10 states where 2015 premium insurance rates for individual plans have been filed, “In all but one (state), the largest health insurer is proposing to increase premiums between 8.5% to 22.8% next year.” Ironically, smaller health plans are reducing their 2015 rates in the same market in an attempt to gain market share.
The significance of this trend is underscored in a statement released earlier this summer by Karen Ignagni, president & CEO of America’s Health Insurance Plans (AHIP), in which she expressed concerns about keeping health insurance affordable for patients. “Affordability remains a top priority for consumers when it comes to their health care,” she said.
Bonus: Be Sure To Watch The Political Races
With the ACA’s continued challenges, the ups and downs of the U.S. economy, key world events in the Middle East, and other confounding variables, one has to wonder what will happen during the mid-year elections this fall. As reported by CNN and other news outlets, the ACA became an key issue in Obama’s 2012 re-election victory as well as Democrats picking up seats in the Senate and House in that election.
As November 3, 2015 approaches, many different messages could be sent back to the White House and Congress. If Republicans take over the Senate and retain control of the House, how will this impact the ACA over the next several years? If the congressional houses remain split, we may have less going on by either political party. How will the state-level elections impact the ACA and state-run Exchanges? Only time will tell.
The Affordable Care Act (ACA) imposes significant information reporting responsibilities on employers starting with the 2015 calendar year. One reporting requirement applies to all employer-sponsored health plans, regardless of the size of the employer. A second reporting requirement applies only to large employers, even if the employer does not provide health coverage. The IRS is currently developing new systems for reporting the required information and recently released draft forms, however instructions have yet to be released.
The new information reporting systems will be similar to the current Form W-2 reporting systems in that an information return (Form 1095-B or 1095-C) will be prepared for each applicable employee, and these returns will be filed with the IRS using a single transmittal form (Form 1094-B or 1094-C). Electronic filing is required if the employer files at least 250 returns. Employers must file these returns annually by Feb. 28 (March 31 if filed electronically). Therefore, employers will be filing these forms for the 2015 calendar year by Feb. 28 or March 31, 2016 respectively. A copy of the Form 1095, or a substitute statement, must be given to the employee by Jan. 31 and can be provided electronically with the employee’s consent. Employers will be subject to penalties of up to $200 per return for failing to timely file the returns or furnish statements to employees.
The IRS released drafts of the Form 1095-B and Form 1095-C information returns, as well as the Form 1094-B and Form 1094-C transmittal returns, in July 2014 and is expected to provide instructions for the forms in August 2014. According to the IRS, both the forms and the instructions will be finalized later this year.
Health coverage reporting requirement
The health coverage reporting requirement is designed to identify employees and their family members who are enrolled in minimum essential health coverage. Employees who are offered coverage, but decline the coverage, are not reported. The IRS will use this information to determine whether the employees are exempt from the individual mandate penalty due to having health coverage for themselves and their family members.
Insurance companies will prepare Form 1095-B (Health Coverage) and Form 1094-B (Transmittal of Health Coverage Information Returns) for individuals covered by fully-insured employer-sponsored group health plans. Small employers with self-insured health plans will use Form 1095-B and Form 1094-B to report the name, address, and Social Security number (or date of birth) of employees and their family members who have coverage under the self-insured health plan. However, large employers (as defined below) with self-insured health plans will file Forms 1095-C and 1094-C in lieu of Forms 1095-B and 1094-B.
Large employer reporting requirement
“Applicable large employer members (ALE)” are subject to the reporting requirement if they offer an insured or self-insured health plan, or do not offer any group health plan. ALE members are those employers that are either an applicable large employer on their own or are members of a controlled or affiliated service group with an ALE (regardless of the number of employees of the group member). ALEs are those that had, on average, at least 50 full-time employees (including full-time equivalent “FTE” employees) during the preceding calendar year. Full-time employees are those who work, on average, at least 30 hours per week. Employers with fewer than 50 full-time employees and equivalents are not applicable large employers and, thus, are exempt from this health coverage reporting requirement.
As referenced above, an employer’s status as an ALE is determined on a controlled or affiliated service group basis. For example, if Company A and Company B are members of the same controlled group and Company A has 100 employees and Company B has 20 employees, then A and B are both members of an ALE. Consequently, Company A and Company B must each file the information returns.
Each ALE member must file Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) and Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) with the IRS for each calendar year. The IRS will use this information to determine whether (1) the employer is subject to the employer mandate penalty, and (2) an employee is eligible for a premium tax credit on insurance purchased through the new health insurance exchange. ALEs with fewer than 100 full-time employees are generally eligible for transition relief from the employer mandate penalty for their 2015 plan year. Nonetheless, these employers are still required to file Forms 1095-C and 1094-C for the 2015 calendar year.
The employer mandate penalty can be imposed on any ALE member that does not offer affordable, minimum value health coverage to all of its full-time employees starting in 2015. Health coverage is affordable if the amount that the employer charges an employee for self-only coverage does not exceed 9.5 percent of the employee’s Form W-2 wages, rate of pay, or the federal poverty level for the year. A health plan provides minimum value if the plan is designed to pay at least 60 percent of the total cost of medical services for a standard population. In the case of a controlled or affiliated service group, the employer mandate penalties apply to each member of the group individually.
ALE members must prepare a Form 1095-C for each employee. The return will report the following information:
An ALE member will file with the IRS one Form 1094-C transmitting all of its Forms 1095-C. The Form 1094-C will report the following information:
As noted above, each ALE member is required to file Forms 1095-C and 1094-C for its own employees, even if it participates in a health plan with other employers (e.g., when the parent company sponsors a plan in which all subsidies participate). Special rules apply to multiemployer plans for collectively-bargained employees.
In light of the complexity of the new information reporting requirements, it is recommended that employers should begin taking steps now to prepare for the new reporting requirements:
The following is a frequently asked question recently released by CMS regarding the Marketplace and Income Verification for the purpose of advance payment of the premium tax credit and cost sharing reductions.
Q: Will Marketplaces verify the income of consumers as part of the eligibility process for advance payments of the premium tax credit and cost sharing reductions?
A: Yes. The Marketplaces will use data from tax filings and Social Security data to verify household income provided on an application, and in many cases, will also use current wage information that is available electronically. The multi-step process will begin when an applicant applies for insurance affordability programs (such as the advance payments of the premium tax credit and cost sharing reductions) through the Marketplace and affirms or inputs their projected annual household income. The applicant’s inputted projected annual household income is then compared with information available from the IRS and Social Security Administration (SSA). If the data submitted as part of the application process cannot be verified using IRS and SSA data, then the information is compared with wage information from employers provided by Equifax. If Equifax data does not substantiate the inputted information, the Marketplace will request an explanation or additional documentation to substantiate the applicant’s household income.
When documentation is requested, the Affordable Care Act and implementing regulations specify that if an applicant meets all other eligibility requirements, he/she will be provided with eligibility for advance payments of premium tax credit and cost sharing reductions based on the inputted projected annual household income for 90 days (which may be extended based on good faith), provided that the tax filer attests to the Marketplace that he/she understands that any advance payments of the premium tax credit paid on his/her behalf are subject to reconciliation. If documentation is requested and is not provided within the specified timeframe, regulations specify that the Marketplace will base its eligibility determination on IRS and SSA data, unless IRS data is unavailable. In this case, the Marketplace will discontinue any advance payments of the premium tax credit and cost sharing reductions.
Please note that applicants for advance payment of the premium tax credit and cost sharing reductions must attest, under penalty of perjury, that they are not providing false or fraudulent information. In addition to the existing penalties for perjury, the Affordable Care Act applies penalties when an individual fails to provide correct information based on negligence or disregard of program rules, or knowingly and willfully provides false or fraudulent info. Moreover, the IRS has said they will reconcile advance payments of the premium tax credit when consumers file their annual tax returns at the end of the year, and it will recoup overpayments and provide refunds when appropriate, subject to statutory limits.
With the open enrollment period for the Exchange beginning October 1, 2013, many questions are beginning to surface regarding how premium subsidies will work as individuals start to evaluate all of their options available to them.
Q1: It sounds like individuals who choose to buy health insurance on the Exchange will have to pay the full monthly premium for the coverage they choose and subsidies will be paid through tax credit that are received annual as a tax refund. How can a low income person who is living paycheck to paycheck afford this?
A: When consumers apply for a plan on the Exchange (aka marketplace), you will be asked to provide income information to determine if you are eligible for a premium tax credit (aka subsidy). A subsidy will be available to people with incomes up to 400% of the federal poverty level ($45,960 for an individual in 2013 or $94,200 for a family of four).
If you qualify for the subsidy, consumers can opt to receive their tax credits in advance, and the exchange will send the money directly to the insurer every month. This subsidy will reduce the amount you owe up front on your medical premium. You can also choose, instead, to receive your credit when you file your taxes the following year.
It is important to estimate your income as accurately as possible and to contact the Exchange during the year if you find out that you are making more or less than expected. When completing your 2014 taxes, your estimate will be reconciles with what you actually earned. If you have received more than you were due, you could have to repay those amounts.
Q2: What happens if I do not pay my premium in a timely manner after I have purchased insurance on the Exchange? If I am terminated from the policy, will I be able to have it re-instated?
A:Consumers who are receiving premium tax credit for coverage on the Exchange will have a 90 day grace period to catch up on late premiums. Other consumers who do not receive a subsidy may get more or less time, depending on the Exchange rules. Once the grace period has passed, consumers will generally have to wait until the next annual open enrollment period in the fall to re-enroll in coverage. Please note though, if an individual goes uninsured for more than 3 months, they could be assess a penalty for not having insurance coverage of up to $95, or 1% of income in 2014, whichever is greater.
Please contact our office for assistance with evalutating your options and obtaining coverage through the Exchange.
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 2: Who Is Eligible for a Premium Tax Credit or Cost-Sharing Subsidy?
As noted in Part 1, failing to offer full-time employees minimum essential coverage, or coverage that meets the affordability or minimum value requirements, is not enough to trigger liability under the Employer Mandate. Two additional things must occur before any penalty will be assessed:
Thus, an employer should consider which employees are potentially eligible for an Exchange subsidy when deciding how to comply with the Employer Mandate. It is important to note that the employee must qualify for the Exchange subsidy. An employee’s dependent receiving an Exchange subsidy (i.e. an adult child who is not a tax dependent of the employee) will not cause an Employer Mandate penalty.
Coverage Through an Exchange
In order to be eligible to receive an Exchange subsidy, an individual must enroll in health coverage offered through the Exchange. Under the ACA, an Exchange will be established in each state, either by the state or by the federal government (or a combination of the two). An Exchange is a governmental entity or nonprofit organization that serves as a marketplace for health insurance for individuals and small employers. Health insurance offered through the Exchanges must cover a minimum set of specified benefits and must be issued by an insurer that has complied with certain licensing and regulatory requirements.
Eligibility for an Exchange Subsidy
There are two Exchange subsidies available:
“Certification” of Eligibility for an Exchange Subsidy to Employer
The Employer Mandate penalty applies only when the employer has first received “certification” that one or more employees have received an Exchange subsidy. The IRS will provide this certification as part of its process for determining whether an employer is liable for the penalty. This penalty will occur in the calendar year following the year for which the employee received the Exchange subsidy (i.e. the employer would receive the penalty in 2015 for a employee Exchange subsidy beginning in 2014). Under IRS issued procedures, employers that receive notice of certification will be given an opportunity to contest the certification before any penalty is assessed.
In addition, Exchanges are required to notify employers that an employee has been determined eligible to receive an Exchange subsidy. The notification provided will identify the employee, indicate that the employee has been determined eligible to receive an Exchange subsidy, indicate that employer may be liable for an Employer Mandate penalty, and notify the employer of the right to appeal the determination. These notices will be useful in giving employers an opportunity to correct erroneous Exchange information and protect against erroneous penalty notices from the IRS. These notices will also be useful in budgeting for any penalties that may be owed.
The Employer Mandate penalty applies only to an employer failing to offer health coverage if one or more of its full-time employees enrolls in insurance coverage through an Exchange, and actually receives either a premium tax credit or a cost-sharing subsidy. Unless a full-time employee enrolls in an Exchange and obtains the tax credit or subsidy, the employer is off the hook. This can lead to some surprising exemptions from the penalty.