Under the Affordable Care Act (ACA) health care reform law, employees who don’t have access to affordable group health insurance that provides minimum value may obtain individual insurance through the exchanges. As part of their core responsibilities, exchanges determine whether employees qualify for advance premium tax credits and other cost-sharing reductions. Two sets of regulations relate to the concept of affordable health insurance.
Short route to contesting employees’ eligibility for tax credits
You will have two avenues to contest employees’ eligibility for premium tax credits. After employees reconcile their advance tax credits on their 1040s, it will become clear whether they qualified for them. If they did, you can contest your liability for free-rider penalties with the IRS, as you can contest any tax penalty. Drawback: It will be quite some time before all this information is known to the IRS and you. Therefore, you will need to maintain files on employees’ coverage options, the cost of self-only coverage for the lowest cost plan, their pay and the affordability safe harbor you used.
On the other hand, final regs issued by the Department of Health and Human Services (HHS) require exchanges to notify you if employees qualify for advance tax credits, and give you 90 days to contest this determination and to prove that your health plan offers minimum value and is affordable. Unlike the IRS’ appeals route, you won’t need to wait until employees file their tax returns to contest their eligibility for tax credits. These regs stress, however, that you will only have access to limited information for this appeal, such as what coverage (if any) is available to employees, the cost of that coverage and employees’ pay.
Employees who have been determined ineligible for tax credits based on your successful exchange appeal can further contest this determination with the exchanges. You don’t have another appeal if, based on this second round of appeals, the exchanges reverse and again decide employees are eligible for tax credits. The regs also note that you may extend a special enrollment period to employees who ultimately lose their eligibility for premium tax credits. Upshot: In all likelihood, you will also need to pursue your appeal rights with the IRS.
PAYROLL PRACTICE TIP: The HHS’ regs point out that you won’t have access to employees’ confidential tax information, which is critical for free-rider liability, since insurance isn’t affordable if it exceeds 9.5% of employees’ household income. In all probability, the IRS will also deny you access to this information. You can wiggle out of this bind by opting to use one of the IRS’ affordability safe harbors: employees’ contributions toward premiums for self-only coverage for the lowest cost plan can’t exceed 9.5% of their W-2, Box 1 income, their hourly rates of pay or the federal poverty line.
Appealing SHOP decisions
Small employers may obtain health insurance through the SHOPs. States may define small employers as either employers with 100 or fewer employees, or employers with 50 or fewer employees during the preceding calendar year. Under the HHS’ regs, SHOPs must provide an eligibility appeals process for employers. (78 F.R. 54069, 8-30-13)
Individual responsibility payments
The employer mandate may be postponed until the 2015 plan year, but the parallel provision, which requires individuals and their dependents to obtain affordable health insurance that offers minimum essential coverage or make an individual responsibility payment, still kicks in next month.
Employees and dependents enrolled in group coverage meet this requirement. Under final regs, which become effective for tax years ending after Dec. 31, 2013, employers with self-insured plans will be considered to provide minimum essential coverage regardless of whether those plans could be offered in the large or small group market. Also included: COBRA coverage and retiree coverage, but only if employees actually enrolled in the coverage, and group plans offered by third parties on behalf of employers, such as group plans offered by employee leasing organizations.
GET READY FOR QUESTIONS: To determine whether coverage is affordable or whether employees qualify for a hardship exemption from the individual responsibility payment, they must add back into their income the amount of their pretax deductions for health insurance. The regs recognize that this information may not be readily available to them, but it is to you. Be proactive: Use the Employer Coverage Tool to create an information template for all employees. (78 F.R. 53646, 8-30-13)
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