Respond Quickly to New Marketplace Notice

Fast response could help limit ACA liability

By Allen Smith, J.D. Jul 14, 2016
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Employers are starting to receive notices required by the Affordable Care Act.

Employers' quick response to new notices from the government's health insurance marketplaces—also called public exchanges—may limit employer-mandate liability under the Affordable Care Act (ACA).

Organizations with 50 or more full-time employees or equivalents during the prior year—which are subject to the mandate to provide ACA-compliant group coverage to full-time employees—are starting to receive notices from the ​health insurance marketplaces when employees instead buy health policies on their own through an exchange and receive premium tax credits to subsidize their purchase.

Companies should appeal quickly if the notices falsely state that employees weren't offered affordable minimum essential health coverage through their employer, said Amy Gordon, an attorney with McDermott Will & Emery in Chicago.

Nicole Elliott, an attorney with Holland & Knight in Washington, D.C., said that employers receiving the notices have been confused about them. The notices are sent to the address given by the employee, so if there are multiple locations for an organization, it's not uncommon that the notice might go to an address that is not the preferred address for HR. And there's the added element that the notices are new, so employers aren't sure what they're for.

The ACA requires the marketplaces to send notices to employers if an employee received an advance payment of a premium tax credit, Elliott noted. "It is an important notice for employers to watch for because it indicates they might be liable for the employer shared responsibility payment, a tax imposed by the IRS," she said.

Appeals must be filed within 90 days of the date of the marketplace notice.

Dishonesty or Honest Mistakes?

"The expectation is that some employees who turn down affordable employer-sponsored coverage will not be entirely honest when completing marketplace applications," said Damian Myers, an attorney with Proskauer in Washington, D.C. Or employees may misunderstand marketplace applications and accidentally insert inaccurate information.

Regardless, once receiving a notice, an employer should review internal files to determine if the employee received an offer of affordable coverage that provides minimum value under the employer's health plan, Myers said. If not, the employer has no basis to appeal the letter.

If the employee did receive an offer, the employer may appeal the marketplace's determination. If the marketplace reverses its determination, the employee will be notified. The employee will be asked to update the marketplace application, and informed of the possibility of tax liability if the application is not updated.

Early Tax Indicator

The marketplace premium credit determination and IRS penalty assessment under the employer shared responsibility mandate are separate, Myers said. So appealing the marketplace determination will not prevent an IRS penalty determination. ​The marketplaces have no ability to fine or sanction an employer. ​But a successful appeal "would certainly be beneficial in the event that a penalty is assessed by the IRS," he added, as it might help persuade the IRS that the penalty was imposed in error.

"Given the exposure for tax liability under the ACA to the employer and the employee, employers should review the marketplace notice and their internal records and consider taking action" if they receive a notice, Elliott said. "It is an early indicator of the tax. Receiving a notice does not definitely mean the IRS will be in hot pursuit."

"Appealing an incorrect eligibility determination can provide an opportunity to possibly avoid a potential excise tax under the employer shared responsibility provisions," Gordon added.

She noted that, in regards to shared responsibility penalties for failing to offer health insurance:

  • Effective for plan years beginning on or after Jan. 1, 2015, a $2,080 excise tax penalty applies to a large employer that fails to offer at least 70 percent of its full-time employees' health coverage. 
  • The $2,080 penalty is assessed on a monthly basis but applied to all of an employer's full-time employees minus 30.
  • For 2016 and going forward, the 70 percent threshold is raised to 95 percent.

A second type of excise tax penalty under the employer shared responsibility provisions is for the failure to offer minimum value and affordable coverage. That penalty is $3,120, assessed monthly, and applies to each full-time employee who isn't offered minimum value, affordable coverage by the large employer who then goes to the marketplace and gets an exchange subsidy. Large employers are defined as having 50 or more full-time employees or full-time equivalents.

Appealing the marketplace notice "is the first line of defense at disputing" the employer mandate penalties, Gordon said. "The employer shared responsibility payment is assessed on a monthly basis; thus, early intervention can reduce future monthly liability on the part of the employer. Equally important, the appeal can also minimize the employee's potential liability to repay the advance payment of premium tax credits that the employee may not be eligible to receive and potentially avoid adverse tax consequences at year-end."

More information about the appeal process can be found on the How to Appeal a Marketplace Decision webpage at

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