School districts have begun to receive notifications from the “Health
Insurance Marketplace” alerting the district’s “Benefits Manager” that some
employees have obtained their insurance on the health insurance exchange
(healthcare.gov) and are eligible for “advance payment of premium tax
credit” (APTC) or “cost-sharing reductions” (CRS). While these terms are
worded slightly differently, we have been discussing them as “credits and
premium assistance” in our presentations regarding PPACA for years. We
have referred to these notifications as “section 1411 certifications,” because
they come from §1411 of the Affordable Care Act. For short, we will call
them “notifications” in this email update.
A few clients have been uncertain about whether this is an official
government communication. We believe it is. The Marketplace has
indicated that it will be sending these notifications out in batches, so if you
have not yet received one, you should be on the lookout for yours in the
next few months. On the next page, we have included a screen shot of the
first page of the letter so that you can be sure to identify the official notice if
or when you receive it.
Marketplace Verification and Applicability to PPACA Tax
Penalties. Essentially, the notification means some of your employees have
indeed purchased insurance on the Marketplace (which we’ve often called
“the exchange”) and are eligible for government assistance toward their
premiums. These notifications are part of a multi-step verification process
which will be used by the federal DHHS and IRS to do the following: (1)
confirm the eligibility of your employees for government assistance on the
Marketplace, and (2) assess whether your district will owe a penalty for
failing to offer insurance or offering unaffordable insurance to that
employee.
If you are a “large employer” who has stayed informed regarding your
PPACA obligations, this should start to sound familiar. As you have heard
many times by now, school districts subject to PPACA’s insurance offer
requirements because of their “large employer” status can be penalized on a
per-employee basis for any employee who meets the following criteria:
1. Is a “full time” employee under the PPACA regulations;
2. Receives no offer or an “unaffordable” offer from the district;
3. Declines the district’s offer and enrolls in coverage from the
Marketplace; and
4. Obtains credits or premium assistance (the form calls these APTC or
CRS) from the Marketplace.
Not until each of those things are met will the district be potentially
subjected to a tax penalty for that particular individual. That’s where this
notification comes in. Section 1411 of PPACA requires the government to
notify you if your current or former employee could subject you to one of
those penalties. If you have received one of these notifications, they likely
state at least one and possibly all 3 of the following things near the top:
This person [your employee] reported that he or she:
didn’t have an offer of health care coverage from [the district];
did have an offer of health care coverage, but it wasn’t
affordable or didn’t provide minimum value; or
was in a waiting period and unable to enroll in health care
coverage.
As you can see, those assertions made by your employee or former
employee start to hint at the government’s analysis of your potential tax
penalty liability under PPACA. In fact, the notification goes on to say that
“This is only a notification that [the district] may have to pay an employer
shared responsibility payment,” aka, a tax penalty. The notification amounts
to the government indicating that the particular employee has done at least
part of what’s required to subject your district to penalty, assuming your
district is a “large employer” and assuming the employee might meet the
other requirements (such as being a “full time” employee).
Appeals Process. Alongside this multi-step verification process is a
multi-step “appeals” process. This is discussed in the notification, as well,
under the “What can I do next?” and “What are my appeal rights?” sections.
As we think of it, this is your first bite at the apple toward avoiding potential
tax penalties if you do not believe you should be penalized for that particular
employee. According to PPACA, you will have another chance to appeal their
penalty determinations later, but we recommend taking this appeals process
seriously and putting all of your applicable arguments into the appeal. For
example, if you offered “affordable” insurance to that employee, then you
should appeal the notification to start making your case with the
government.
Click here for appeal form and here the explanation of the appeal
process that can also be found on healthcare.gov. As you will see, the
appeal form has 4 basic sections, and most districts will ignore section 2.
Section 1 is the employer information, and section 4 is for your signature.
Section 3 is where you will need to apply the rules of PPACA and the
information you know about the employee for whom you received the
notification. The introduction to section 3 states as follows:
Tell us why you’re appealing the Marketplace determination of
this employee’s eligibility for help with the costs of Marketplace
coverage....
An individual may qualify for help with the costs of Marketplace
coverage if the coverage that’s offered by the employer doesn’t
meet minimum value requirements or isn’t affordable with
respect to the employee.
Use the space below to explain why this employee shouldn’t
have been eligible for advance payments of the premium tax
credit and cost-sharing reductions (if applicable). Use extra
paper, if necessary. If you’re including documents to support
your request, send us copies. Keep all original documents.
The appeal is asking you to tell the government why this person is not
eligible for their assistance on the Marketplace. However, what they’re
actually asking you to do is assist them in fact-checking your employee’s
insurance application on the Marketplace and more importantly, instructing
you to provide the reasons you should not be penalized, including supporting
documentation.
Individualized Appeals. Because of the nature of the PPACA tax
penalties, you will need to appeal or not appeal each notification on a very
individualized basis. While some appeals may look alike, they each require a
careful analysis of the employment data for the individual employee, such as
which offer they received and how many hours they worked. This is why we
have recommended for many years that you should be tracking and
centralizing all of the hours for all your employees, especially each non-
certificated employee (including subs, community coaches, and bus drivers).
Even though some of those employees will never subject you to penalty, you
may receive notifications for them.
Take, for example, a substitute teacher who only subbed for the
district a few times each month. It is very unlikely that the employee could
ever attain “full time” status under the PPACA regulations during the
applicable time period (must work 30 hours per week on average).
Assuming the sub never attained “full time” status, he or she cannot subject
the district to a penalty. However, that person may still be eligible for an
APTC or CSR on the Marketplace, so you will still receive a notification if they
apply on the Marketplace and list you as an employer. The fact of the
matter is, in most cases you may have no idea whether that person is
otherwise eligible for government assistance, which is what the appeal form
asks you to verify. But you do know the employee cannot subject you to
penalty. Are you better to err on the side of providing more information and
tell the IRS that you’re unsure of their exchange eligibility but the employee
is not a “full time” employee? This question remains unclear, but for now,
we think you should discuss it with your legal counsel and err on the side of
caution.
Contents of the Appeal. Assuming you do decide to appeal, you will
need to determine how to word your position on the form, which does not
provide appeal response options. You will also need to determine whether
you want to include documentation, and you must include a copy of the
notification you received with your appeal. Appeals must be filed within 90
days. Remember, what you send to the IRS now will help you in the future,
but it could also limit your options later if you are not careful in how you
structure your response.
Over the long run, we believe each district will get to a point where
you shouldn’t need to involve legal counsel for each appeal. For now, we
recommend discussing your appeal options with your legal counsel. If you
have received one of these notifications or if you have questions about the
appeal process, you should consult with your school district’s attorney or call
Karen, Steve, or Bobby.