January 30, 2015

Potential Employer Liability from Health Insurance Exchange

Dear Jon,

I am a large employer and offer a health plan to my employees, but some of them have opted out.  Will I be subject to a tax penalty if these individuals go to a health insurance exchange?  And how will I know if my employees go to a health insurance exchange? Is there some sort of notification process?

—Nervous about Notifications near Napa


Dear Nervous,

If you are making an affordable offer (for employee-only coverage) of minimum essential coverage that provides minimum value to your full-time employees and their dependents you will not be subject to a tax penalty even if some of your full-time employees apply for coverage at a health insurance exchange.  Because you are making an offer that meets the law’s requirements these full-time employees will not qualify for subsidized coverage and without a subsidy award there is no penalty for the large employer.  However, this process is not foolproof and complications could arise.  Don’t fret, however, because an appeals process exists to deal with situations, for instance, when an employee is incorrectly awarded a subsidy or if a tax penalty is triggered by an employee that is not full-time.

It is possible that an individual who does not qualify as a full-time employee and who is not offered employer coverage, can apply for and receive subsidized coverage at a health insurance exchange.  In instances such as this, employers will be notified by a health insurance exchange that its employee received subsidized coverage.  The IRS has provided the following guidance on the issue:

How will an employer know that it owes a tax penalty (an Employer Shared Responsibility payment)?

The IRS will adopt procedures that ensure employers receive certification that one or more employees have received a premium tax credit.  The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made.  The contact for a given calendar year will not occur until after the due date for employees to file individual tax returns for that year claiming premium tax credits and after the due date for applicable large employers to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).

Here’s how the process works:

•   An employee may go to a health insurance exchange, apply for advance payments of the premium tax credit and cost sharing reductions (i.e. subsidies);

•   The Department of Health and Human Services (HHS) has the authority to determine whether or not the employee is eligible to enroll in a health insurance exchange plan and certify whether or not they qualify for a premium tax credit.  This certification is called Section 1411 Certification (named for the provision of law);

•   In the spring of 2015, HHS has advised that it will send Section 1411 Certifications in batches to employers notifying them that employees have qualified for subsidies;

•   Employers will be given the opportunity to appeal the certifications, but may wait until the IRS later contacts them to inform them of any tax liability.

•   An employer may receive many of the Section 1411 Certifications from the HHS (and potentially from the health insurance exchanges), but may wait to appeal directly to the IRS if a tax is imposed.

For more information about this article or if you have other questions about health care reform, contact our Health Care Reform team today at HealthCareReform@wga.com or 800-333-4WGA.  Write to Dear Jon at dearjon@wga.com.  For more information and resources about Health Care Reform, visit www.wgat.com/health-care-reform.