The Employer Mandate Penalty and Employee Eligiblility for a Premium Subsidy: Increased Enforcement Is Coming

This month, there have been two significant announcements from the Department of Health and Human Services (HHS) regarding employee eligibility for a premium subsidy under the Affordable Care Act (ACA).

Employer Mandate Penalty and Your Health Plan

First announcement: HHS has hired a third-party contractor to perform an employer verification study. Its purpose is to call employers and determine whether applicable large employers are offering an affordable, minimum value plan (AMVP) to their employees. Please note that participating in the call is voluntary; there are no consequences if you choose not to participate. In addition, calls will only be conducted from April-June and will take 10-15 minutes.

Why this is important: In order to trigger the employer mandate penalty, a full-time employee must enroll in a health plan on an Affordable Care Act Exchange and be eligible for a premium subsidy. Although Exchange regulations require that an “electronic data source” is accessed to verify eligibility for a subsidy, in reality, no such source is available. The regulations go on to note that in the event there is a not an available electronic data source, employers may be contacted and asked if they offer an affordable, minimum value plan. This process was delayed in 2014 and 2015, but HHS seems ready now to move forward with it.

Second announcement: Besides verifying whether an employee was offered an AMVP, Exchanges must also notify employers if an employee has enrolled in an Exchange and whether or not they are eligible for subsidies. On May 13, HHS published a model notice that the Federal Exchange will send to employers. Click here to view it.

Why this is important: If an employer is offering an AMVP, and the Exchange did not discover it during the enrollment process, the employer can contact the Exchange with plan details. The Exchange then would review the employee’s eligibility and stop payment on any premium subsidies. However, if the Employer is not offering an AMVP, they could incur penalties under the employer mandate.

The Internal Revenue Service is the entity tasked with enforcing the employer mandate, but there has to be cooperation between the Exchanges and the IRS to verify if the penalty tax should be applied: the IRS won’t know unless informed by the Exchanges.

In summary, it wasn’t possible for the IRS to enforce the employer mandate until the Exchanges had a verification process, including a notice sent to employers. Employers should be on the lookout for notices from the Exchanges as well as the IRS.


Source: Self Insurance Institute of America

Mark Deschenes

Author Mark Deschenes

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