December 20, 2016
Employers have recently begun to hear back from the Department of Health and Human Services (HHS) regarding their appeal of the section 1411 notices they received. Many employers have been surprised to learn their appeal was unsuccessful with HHS as they offered the employee in question minimum value coverage at an affordable price under the Affordable Care Act’s (ACA) standard for each month of the 2016 calendar year. For better or worse, an unsuccessful HHS appeal is the end of the HHS appeals process for an employer. Therefore, the employer is stuck with the adverse HHS decision. This article explains why employers experiencing an unsuccessful HHS do not need worry and instead should be thankful as everyone is winning from the employer’s perspective in the scenario.
First, remember an appeal to HHS will not be the final determination on whether an employer will be assessed a penalty under section 4980H. The HHS appeal is completely separate from the IRS appeal. Therefore, an unsuccessful appeal to HHS does not necessarily mean the employer will be assessed a section 4980H penalty. Presumably, the Form 1095-C for the employee will trump the unsuccessful HHS appeal when the IRS is determining whether to assess the section 4980H(b) penalty for that particular employee. So long as minimum value coverage was offered at an affordable price, line 14 will be completed with code 1A, 1C, or 1E and line 16 will be completed using one of the affordability safe harbor codes. Any one of these code combinations will signify to the IRS the employer should not be assessed a section 4980H(b) penalty for that employee. This should calm an employer’s nerves regarding an unsuccessful HHS appeal.
An unsuccessful HHS appeal will also spare the employer from the awkward position of making one of its employees ineligible for premium tax credits the employee thought he/she was entitled to receive. Under the ACA’s play or pay mandate, an employer is placed in an adversarial position to its employees because an employer’s offer of minimum value coverage at an affordable price quashes an employee’s ability to receive a premium tax credit. However, if an employer does not provide minimum value coverage at an affordable price, the employer could be subject to a section 4980H penalty. An employer’s successful appeal to HHS would have a similar impact making the employee potentially liable for premium tax credits to which he/she was not entitled and ineligible moving forward for premium tax credits unless there is a change in circumstances.
Conversely, if an employer loses its HHS appeal both the employee and the employer will win assuming the employer’s offer of minimum value coverage was provided at an affordable price. In this best case scenario, the employee will be able to receive premium tax credits which will almost always provide cheaper coverage options compared to the employer’s offer of coverage even if it is offered at an affordable price under the ACA's standard. And, as a result of the employer being able to code line 14 with 1A, 1C, or 1E and line 16 with one of the affordability safe harbor codes, the employer will not be subject to a section 4980H(b) penalty with regard to that employee. The employer will have the benefit of taxpayers paying a portion of its employee’s premiums while not being subject to the section 4980H penalty. Nothing about this scenario is bad from an employer perspective.
In the ultra-competitive business world any loss is taken hard. However, losing an HHS appeal should not be something that is upsetting to the employer. To the contrary, if an employer loses its HHS appeal and has offered an employee minimum value coverage at an affordable price for the requisite months in 2016, the best case scenario has occurred. The employee will continue to receive premium tax credits to pay for insurance which will frequently provide a wider array of plan options and the employer will not be liable for a section 4980H(b) penalty. Both the employee and the employer win. If you have any questions regarding the HHS appeals process, please feel free to contact us.
About the author – Ryan Moulder serves as General Counsel at Accord Systems, LLC and is a Partner at Health Care Attorney's P.C. Ryan received his LL.M. from Georgetown University Law Center and his J.D. from Saint Louis University School of Law. He has distinguished himself as a leader in the newly created Affordable Care Act arena and has written and spoken on a variety of ACA topics as it relates to compliance for companies.
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