ACA Exchange Notices: What Do They Mean and How to Respond
The receipt of a Marketplace (or Exchange) Notice can be a concerning event for an employer that could lead to paperwork and fines depending on the health coverage offered to full-time employees. According to a 2015 ADP ACA Employer Confidence study, nearly 50% of organizations are not aware of the importance of Exchange Notice management. Therefore, it is extremely important for all large employers with more than 50 full-time employees to understand the implications of receiving such a notice so that they can be ready to handle the situation in the most efficient and cost-effective way possible.
What Does It Mean?
The receipt of an Exchange Notice means that at least one of your employees applied for coverage through an Affordable Care Act Marketplace or Exchange and was deemed eligible to receive a premium tax credit or subsidy toward their payment for health coverage. This will generally happen if the employee in question was not offered minimum essential coverage or was offered minimum essential coverage but the coverage either was not affordable or did not provide minimum value.
How Should You Respond?
When you receive an Exchange Notice for an employee, it is an opportunity to:
- Look at the coverage offered, if any
- Make sure you are in compliance from a penalty perspective
If appropriate coverage is not being offered, it gives you a chance to make an offer and potentially limit the amount of penalty assessed by the IRS.
If you offered affordable coverage consider appealing the Exchange Notice. It could limit the amount of money the employee has to repay if their determination of premium tax credit (PTC) is reversed.
Penalties
The amount of the penalty will depend on the circumstances surrounding the reason the employee was given a premium tax credit or subsidy toward their payment for health coverage and the number of months they were eligible.
If the employer did not offer minimum essential coverage (MEC) to substantially all its full-time employees, the employer would owe a penalty (assessed monthly) equal to the following: $2080 for tax year 2015 and $2160 for tax year 2016, times (i) the number of full-time employees the organization employs, minus (ii) 30 employees. (Beginning in 2016, the exemption in (ii) reduces from 80 to 30.)
If the employer does offer minimum essential coverage to substantially all of its full-time employees, but the employer did not offer MEC to that particular employee or the coverage the employer offered to that employee either did not provide minimum value or was not affordable to the employee, the employer would owe a penalty equal to $3120 for tax year 2015 and $3240 for tax year 2016 for each full-time employee who receives a premium tax credit or subsidy toward their payment for health coverage.
Appeals
Appealing an Exchange Notice could result in a vast amount of research and paperwork for the employer. As part of the appeal, the employer will be expected to show it complied with all the requirements of the Affordable Care Act with respect to the employees in question. To accomplish this, the employer will have to establish that the employee in question was offered coverage and that the coverage was affordable and provided minimum value. As part of that process, the employer will likely have to provide information regarding the salary of the employees in question. The employer will have a relatively short period within which to provide proof of compliance. A successful appeal may result in a loss of the subsidy for the employees in question.
For more information on the top things you need to know about Exchange Notices, such as which states are issuing them and where the Notices are going, check out this infographic.
