In June of 2016, the IRS began delivering their backlog of subsidy notices to employers. The notices informed Applicable Large Employers (ALEs) when an employee who might have been eligible for employer-sponsored health coverage enrolled in health coverage through a state or federal marketplace AND received an Advanced Premium Tax Credit (APTC) and Cost-Sharing Reduction (CSR). Notices were automatic computerized mailings triggered by the employee’s enrollment.

Immediately, the floodgates of questions opened:

“What should I do if I receive an ACA subsidy notice?”

“Is there a penalty associated with an employee ACA subsidy notice?”

“How do I appeal an employee ACA subsidy notification?”

All great questions, but let’s start with a little note of reassurance. Receiving an Affordable Care Act Subsidy Notice does not automatically mean that you are subject to an ACA penalty.

That being said, don’t just toss them into the junk-mail box—there are some decisions to make, and they may involve a lawyer. Take the following into consideration in determining the appropriate response to an ACA subsidy notification.

What is your Pay or Play Strategy?

The Employer Shared-Responsibility Mandate of the Affordable Care Act gives employers the option to “Play or Pay”. Your employer’s “Play or Pay” strategy will impact the way you handle ACA subsidy notices.

If you choose the “Pay” strategy, you may choose to do nothing in response to subsidy notices. Adopting a “Pay” strategy means that the employer is choosing to pay the ACA fines rather than offer coverage to all Full-Time Employees (FTEs). In year one, employers could skirt the Sledge Hammer Penalty at $2080 per FTE by offering employer-sponsored Minimum Essential Coverage (MEC) to at least 70% of their FTE population. In subsequent years, that threshold will increase to 95%.

If you choose the “Play” strategy, meaning that you plan to comply with the ACA in order to avoid some or all of the associated penalties, then you will want to follow the considerations below.

Have you extended an offer of coverage to the employee?

First, take a look at the subsidy notice and see if the employee:

1. is a FTE per ACA standards (expected to work more than 30 hours/week or averages 130 hours or more during a calendar month over a given measurement period)
2. is in a Limited Non-Assessment Period (LNAP)
3. has been offered employer-sponsored coverage during the months in which the employee was deemed eligible for an APTC

If the employee is not a FTE per ACA standards, there is no risk of an ACA penalty—the employer is only required to offer coverage to FTEs.

If the employee is in a waiting period, or is a non-FTE in a measurement period, the employee is in a LNAP. Both the employer and the employee are not subject to a potential penalty should an employee receive an APTC during the months in which the employee is in a LNAP.

If the employee has been offered employer-sponsored health coverage at the same time when they qualified for an APTC through the exchange, there might be a need to begin seeking legal counsel on how best to proceed. Consider the following question.

If an offer has been extended, does the employee understand the implications of accepting subsidized coverage?

If the employee has been offered employer-sponsored health coverage during the months in which he or she has been deemed eligible for an APTC, someone, be it the employer or the employee, has made an error and will be assessed a penalty. Should employers find themselves in this situation, they should:

1. consider contacting legal counsel
2. consider addressing the notice with the employee, who may have deliberately or negligently misinformed the marketplace exchange that they were not offered employer-sponsored coverage

Damian Myers, an attorney with Proskauer in Washington D.C. states, “The expectation is that some employees who turn down affordable coverage will not be entirely honest when completing marketplace applications.” That being said, we know that some people can mindlessly click through the marketplace exchange and illegitimately obtain a subsidy without any ill-intent. In this case, employers should consider counseling FTEs of the potential penalties and tax liabilities associated with obtaining an APTC while deliberately or ignorantly misrepresenting their eligibility for employer-sponsored health coverage.

You can learn more on decisions that employers can appeal with regard to ACA health notices at Healthcare.gov.

Where ACA Software can Help

For those who utilized an ACA software solution to track their FTE population and complete ACA reporting and filing requirements, they will likely have a sound audit trail for answering any eligibility questions or capturing coverage-offer dates when responding to ACA subsidy notices. Those who contracted with ACA Reporting Services may or may not have the same access to historical eligibility or enrollment data.

For more on the benefits of using ACA software, consider downloading our free ACA Guide, or view our blog: What to Look for When Selecting an ACA Software Solution.