If you thought an IRS audit on your income tax return was tough going, wait until you hear about Affordable Care Act (ACA) audits. They’re multi-level and we’re in uncharted waters.
They arise from individuals claiming a subsidy (the premium tax credit) for health coverage obtained from a government Marketplace. The government is now questioning some of these individuals to determine whether they had access to affordable minimum essential health coverage through an employer, which makes them ineligible for the subsidy.
The government calls employers with 50 or more employees “Applicable Large Employers (ALEs),” even though a company with say 53 employees is still viewed by business standards as a small business. ALEs may become involved in these subsidy reviews and, even worse, they may become subject to IRS penalties. What’s more, even small businesses that the government suspects may be ALEs could receive notices.
It’s all very complicated, so let’s try to simplify what we can.
Who’s doing the audits?
Various federal agencies and departments have a hand in ACA, including the IRS, the Department of Labor (DOL), the Department of Health and Human Services (HHS), and the Centers for Medicare and Medicaid Services (CMS). Each is charged with enforcement of ACA requirements. Each may check on different matters. For audit purposes, the two key players are CMS and the IRS.
The Centers for Medicare and Medicaid Services, which is under HHS, are now auditing some individuals who claimed the subsidy for health coverage beginning January 1, 2016 (the government took the word of individuals for their eligibility in 2015); the first round of notices went out in June. If such individuals work for companies, CMS sends a notice to employers, allowing companies to contest an individuals’ eligibility for a subsidy.
The IRS, which is the agency charged with imposing penalties on employers failing to meet their shared responsibility mandate, may later or separately impose a penalty.
What to do if you receive a notice?
If an employee’s subsidy is under review, the employer receives a notice with the opportunity to appeal the employee’s subsidy. Why appeal? Because an ALE is penalized if a full-time employee obtains subsidized coverage through the marketplace. In other words, to avoid the penalty an employer must show that the company offered affordable coverage so that the employee was not eligible for the subsidy.
Because there is no single Marketplace, there are different rules for the company’s appeal process; it depends on which Marketplace the individual used. Here are some points for employers to note:
- Obtain appeal forms from government.
- Check on the reason why the notice was issued to your employee. A reason may or may not be given. If it is, it can help you develop your response to the employer notice.
- Watch the deadline for responding. It may be 30 days or 90 days, depending on the Marketplace involved. If you have employees working in different states, familiarize yourself with the rules applicable to all such employees.
- Understand how you are required to respond (by mail? by fax?).
- Determine what supporting documentation is needed. This may be very extensive, including company notices to employees of the offering of medical coverage (including a description of the type of coverage and its cost), an employee’s decline of coverage, W-2s and pay stubs, etc. Thirty pages or more of documentation would not be out of line.
- Contact the affected employee directly to explain how the company has become involved in the employee’s subsidy review. If the employee loses his/her subsidy, it could amount to thousands of dollars and be a severe financial hardship, so human understanding on the part of the company is essential.
If you receive a notice but do not think you are an ALE, be prepared to provide payroll records showing that you had fewer than 50 full-time and full-time equivalent employees.
Conclusion
If you are an ALE but have not received any notice yet, you’re lucky; going forward, you may not be so lucky. And if you are currently a small business, you could grow to become an ALE in the future and receive notices down the road. Become familiar with the process, keep good records, and work with employees to make sure they understand your coverage offering and what declining coverage may mean to them and to you. CMS has some FAQs to help you. And try not to let your head explode just thinking about ACA appeals.
