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CMS FAQ Ignores Requirement of 4980H Penalties – 1411 Notices No Longer Required? | Healthcare Attorneys

CMS FAQ Ignores Requirement of 4980H Penalties – 1411 Notices No Longer Required?

By now almost all employers are familiar with the Affordable Care Act (ACA) penalties imposed by 4980H of the Code. However, a recent CMS FAQ appears to have abolished one of the requirements of 4980H. Before elaborating it may be beneficial to refresh everyone’s memory on the language of the 4980H penalties which are stated verbatim below:

(a) Large Employers Not Offering Health Coverage –

If—

(1) any applicable large employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A (f)(2)) for any month, and

(2)  at least one full-time employee of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost sharing reduction is allowed or paid with respect to the employee (emphasis added).

then there is hereby imposed on the employer an assessable payment equal to the product of the applicable payment amount and the number of individuals employed by the employer as full-time employees during such month.

(b) Large Employers Offering Coverage with Employees Who Qualify for Premium Tax Credits or Cost-Sharing Reductions:

(1) If—

(A) an applicable large employer offers to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (as defined in section 5000A (f)(2)) for any month, and

(B) 1 or more full-time employees of the applicable large employer has been certified to the employer under section 1411 of the Patient Protection and Affordable Care Act as having enrolled for such month in a qualified health plan with respect to which an applicable premium tax credit or cost-sharing reduction is allowed or paid with respect to the employee (emphasis added),

then there is hereby imposed on the employer an assessable payment equal to the product of the number of full-time employees of the applicable large employer described in subparagraph (B) for such month and an amount equal to 1/12 of $3,000.

The ACA section 1411 is long, but the pertinent provision states:

Employer Affordability. If the Secretary notifies an Exchange that an enrollee is eligible for a premium tax credit under section 36B of such Code or cost-sharing reduction under section 1402 because the enrollee’s (or related individual’s) employer does not provide minimum essential coverage through an employer-sponsored plan or that the employer does provide that coverage but it is not affordable coverage, the Exchange shall notify the employer of such fact and that the employer may be liable for the payment assessed under section 4980H of such Code.

There are a couple of interesting things to point out regarding the 1411 provision. First, the provision does not limit the notice to full-time employees. Therefore, an employer could expect a 1411 notice for part-time employees, variable hour employees, and seasonal employees in addition to full-time employees. The only employee condition the provision requires for an employer to receive a 1411 notice is an enrollee (or related individual) of the employer receiving a premium tax credit. Additionally, we are unaware of any notice or government release that delayed this provision. Theoretically, these notices should have been provided since the Exchanges opened in 2015. However, the notices never went out.

The 4980H(a) penalty can be imposed on an employer who fails to offer a substantial number of its full-time employees minimum essential coverage. The 4980H(b) penalty can be imposed on an employer who fails to offer coverage that provides minimum value. The 4980H(b) penalty can also be imposed on an employer who provides minimum value coverage at a price that is not deemed affordable under the regulations. Finally, the 4980H(b) penalty can be imposed on the segment of the employer’s workforce who fall in the five percent of employees not offered coverage if the employer is utilizing the 95 percent rule.

One requirement both penalties have in common is the employer receiving a 1411 notice certifying a full-time employee of the employer has received a premium tax credit from an Exchange (see the italics print above). These notices are intended to warn an employer of the possibility of a 4980H penalty and give the employer the option to appeal.

We have been telling our clients for years a notice will be provided before any 4980H penalty is assessed against them. We got this crazy idea after reading the requirements of the 4980H penalties. What we expected would happen was the government would send out too many notices as its systems would not be able to determine who was and, more importantly from an employer’s perspective, who was not eligible for a premium tax credit.

Apparently, CMS is taking the opposite approach. In the FAQ CMS announced the 1411 notices would be provided to “certain employers” whose employees enrolled in an Exchange with advance premium tax credits. Furthermore, these “certain employers” would only be receiving the 1411 notice if the Exchange has the address of the employer. CMS states in the FAQ that it will increase the number of employers receiving the required notice in later years.

Despite the notices only going to “certain employers” the FAQ makes it clear that the IRS will independently determine any liability for an employer under 4980H without regard to whether a 1411 notice was issued or whether the employer engaged in any appeals procedure. This goes directly against the plain language of 4980H.

For an employer who does not receive a penalty under 4980H all of this information will be irrelevant. However, an employer who is assessed a 4980H penalty without being provided a notice has every right to be furious as the penalty is being assessed without following one of the requirements of 4980H, the 1411 notice. This will be particularly true for an employer who operates in an industry where determining whether an employee needs to be offered coverage is challenging such as a staffing company, restaurant, or agriculture company. Some of these employers were planning to use the notice as an additional buffer to avoid subsequent 4980H penalties with respect to the employee the 1411 notice relates.

For the “fortunate” employers who receive the required notice the FAQ provides helpful information about how an appeal will be filed with the government. First, an employer will have 90 days from the date it receives the notice to request an appeal. The appeal will be requested by filling out a form available at https://www.healthcare.gov/marketplace-appeals/appeal-forms/. An employer may fax the appeal to 1-877-369-0129 or mail the appeal to Health Insurance Marketplace at 465 Industrial Blvd. London, KY 40750-0061.

This FAQ confirms what a lot of people have speculated for a long time: the government is not prepared for the complicated reporting required to determine who is eligible for a premium tax credit and, consequently, to implement the 4980H penalties. As a result the IRS is going to assess 4980H penalties even if an employer does not receive the required 1411 notice. Surely this will lead to litigation. Until the issue is resolved, and even when it is, the documentation of ACA compliance efforts is absolutely essential. Additionally, if an employer has a lot of variable hour or seasonal employees a mock audit may be a very good investment.


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