Do you have the right policies, procedures and documentation in place to prove that your health plan is affordable and provides minimum value and has eligibility provisions that cover all employees deemed full-time under the IRS regulations? Are you sure? 

What's a Subsidy Notice?

Starting some time in 2016 (HHS doesn't know exactly when yet), the CCIIO division of Health and Human Services (HHS) will be implementing a part of the ACA it probably should have implemented a year ago—namely, notifying employers that one of their employees received an "advance premium tax credit" (i.e., subsidized coverage) from a state or federal exchange. These notices were required by Section 1411 of the ACA for the federally-facilitated marketplace and state-based exchanges using the federal platform, but HHS hasn't had the infrastructure in place to send the notices, and until recently building out the infrastructure apparently hasn't been a priority. This notice goes by a lot of names in the literature—employee premium assistance notice, notice of employee eligibility for premium assistance, exchange notice, marketplace notice and section 1411 certification, to name a few. To add a little more variety, we'll call them "subsidy notices."

Why Subsidy Notices Are Important

Subsidy notices trigger the first of (what is supposed to be) a two-part adjudicative process that determines whether and to what extent an employer must pay the IRS a pay-or-play penalty (a/k/a "employer shared responsibility excise tax"). 

HHS Subsidy Eligibility Determination

When someone looks for health insurance coverage on the the exchange (whether federally-facilitated or state-based), the person must fill out quite a bit of information about any available employer-sponsored health coverage. In fact, you may have had a few employees ask for the information on this Employer Coverage Tool form. HHS takes that information and the individual's income information and makes an initial assessment of whether the person is entitled to any subsidy. If the person is subsidy-eligible, HHS is then supposed to notify any employer identified by the person during the exchange coverage application process of that fact. Because pay-or-play penalties are triggered by payout of a subsidy, there's potentially serious money on the line, so ACA regulations (here and here) give employers 90 days to appeal the subsidy eligibility determination. If the employer successfully demonstrates that the individual is not, in fact, subsidy-eligible, case closed—no employer shared responsibility excise tax for that person.

The HHS appeals process also establishes the administrative record. In responding to HHS, you'll be submitting documents and reports and preparing narrative accounts. This is the same information you'll have to submit to IRS if it ever tries to assess a pay-or-play penalty down the road.

Some of the more mundane appeal details: Appeals must be made on specific forms available at this healthcare.gov webpage. Completed appeals forms should be mailed to Health Insurance Marketplace, 465 Industrial Blvd., London, KY 40750, or faxed to 1-877-369-0129.

IRS 4980H Penalty Assessment

Recall that this is a two-part appeals process. IRS will have an entirely separate process for disputing its imposition of a pay-or-play penalty. And it really is separate—just because an employer goes all year without receiving a subsidy exchange does not mean it won't be penalized by IRS. HHS says the notice program is being "phased in" and only "certain" employers will get notice in 2016, and IRS can independently determine pay-or-play penalty liability from an employer's Forms 1094 and 1095. In other words, a subsidy notice from HHS is not a prerequisite for the IRS to impose a pay-or-play penalty. IRS hasn't released any details of its appeals process, but we'll keep you posted.

Wait, What About Notices for Subsidies Given in 2015?

The recent HHS guidance says it will start sending subsidy notices in 2016 for the 2016 exchange coverage year, but as you well know the ACA pay-or-play penalties became effective in 2015. So what about subsidies handed out in 2015? Will employers receive some sort of notice that any of their employees got exchange subsidies? Not from HHS, no. The only notice employers will get is from IRS when it starts collecting 2015 pay-or-play penalties, which IRS says it will begin doing after the April 15 deadline for individual income tax returns. So for subsidies handed out in 2015, employers will not be getting the 90-day heads up they're supposed to get from HHS.

This is more than a little concerning because the IRS has not yet published its appeals process for pay-or-play penalty assessment. Its usual process for excise tax assessment starts with an IRS revenue agent sending a letter to a company to which the company must respond within 30 days. Hopefully IRS will allow 90 days to respond, as HHS would have allowed, at least until the HHS subsidy notice process is fully implemented.

What You Should Be Doing Between Now and April 15

1. Do one last review of your plan document's eligibility provisions and any related policies and procedures for determining eligibility under the plan. While the IRS full-time employee definition does not need to be incorporated into your plan document, you'll need to be able to provide documentation showing why the employee is not full-time or is full-time but is eligible for the plan. In both cases, it provides documentation of an employer's defense against pay-or-play penalties.
2. Prepare standardized information about your company and its plans to give employees who might look for exchange coverage. In a recently published FAQ document, HHS says it will be sending the notice to whatever address the employee entered in his/her exchange enrollment application. Employees could very well use the address of the location he/she works or a general address or some other address entirely, so employers will need to be diligent in making sure that office staff and HR folks are made aware of these notices and given instructions for who to forward them to. (By the way, the 90 days runs from the date the employer received the notice at any address, not the date the right HR person received the notice.) So do what you can to make sure the employee has the right contact information to give to healthcare.gov.
   
3. Have a plan in place for what to do with subsidy notices. Make sure the right folks know what needs to be done when the company receives a subsidy notice. Who does it go to? What reports need to be generated, and who will generate them? Who is responsible for analyzing plan terms and preparing the appeal if one is needed? How far up the reporting chain do subsidy notices need to go? Ninety days can fly by, particularly if folks are unprepared. Given that HHS failed to send subsidy notices for the 2015 year, you definitely want to have a plan in place if IRS does not extend its normal response timeframe from 30 days to 90.
4. Think critically about your other policies and procedures with each subsidy notice. Consider HHS subsidy notices to be tests of all the ACA compliance work you've done over the last half-decade. Concepts like breaks-in-service and the look-back measurement method are easy for IRS to write about in regulations, but they're much harder to deal with in real life. Use each subsidy notice as a chance to review the way you've implemented the myriad ACA requirements and make adjustments. Detail you thought you might have needed could end up just overcomplicating matters. Things you thought were straightforward might need more detail to address new nuances.