Marketplace Subsidy Notices What Employers Need to Know

In late June, the U.S. Department of Health and Human Services (HHS) reportedly mailed out several hundred thousand notices to employers, dated June 21, 2016, informing them that one or more of their employees have been certified as eligible for a premium subsidy through a federal Health Insurance Marketplace.  Employers in states with state-run Marketplaces may have received similar notices since 2015; however, HHS has just begun sending notices from the federal Marketplaces this June. A list of states and whether their Marketplace is state-based or federally-facilitated can be found here.

The notice informs the employer that the individual indicated that he or she worked for the employer and either: (i) didn’t have an offer of health care coverage from the employer; (ii) did have an offer of health care coverage, but it wasn’t affordable or did not provide minimum value; or (iii) was in a waiting period and unable to enroll in health care coverage.

This alert describes the appeal process and provides recommendations for employers who have received a notice and are considering whether to appeal.

Foremost, receipt of a Marketplace subsidy notification does not mean that the employer is necessarily liable for a penalty under the ACA’s “pay-or-play” employer mandate. The notices that are being sent from HHS are part of the verification process established to ensure that individuals awarded subsidies are eligible to receive them. Employers who receive a subsidy notification and believe one was awarded to an employee in error have the option to appeal the award. Not doing so may open the employer up to pay-or-play penalties that are assessed by the IRS, if the employer is an applicable large employer (ALE) and the employee works full-time.  Generally, an ALE is an employer that employed at least 50 full-time equivalent employees on average during the prior calendar year.

Should an Employer Appeal?

In general, employers should consider appealing if they believe the employee’s receipt of a subsidy is in error.  For example, if the employer believes that the employee was offered affordable, minimum value coverage, or the employee is actually enrolled in the employer’s plan and thus, in either case, is ineligible for a subsidy.

Even small employers (non-ALEs) should consider appealing a subsidy that they believe was awarded in error, as filing an appeal could help reduce the employee’s potential tax liability. Allowing an employee to receive a subsidy while ineligible may result in ramifications for the employee.  The IRS will attempt to recover all or a portion of an employee’s subsidy if the employee is later determined to be ineligible.

Employers do not need to appeal subsidy notifications received for part-time employees (unless the notice inaccurately identifies them as full-time employees), employees who terminated while in a waiting period for coverage, or notifications naming spouses or family members as recipients of a subsidy (which we’ve seen happen).  Likewise, employers who have not offered affordable coverage to certain full-time employees will not have a basis for appealing such employees’ receipt of a subsidy.

The Appeal Process

Notifications are sent via regular mail to the address the employee provided when they completed their application for Marketplace coverage.  Employers will have 90 days to respond if they wish to appeal a subsidy award to an employee.  Employers will need to submit the following with their appeal:

The appeal will be submitted via regular mail or fax and a decision will be communicated in writing by HHS to the employer and individual.  The decision made by HHS will be final for the employer; however, the individual will have the right to a second appeal.  Any decision made by HHS after the second appeal is filed will be final.  Inclusive of a second appeal, the entire process can take up to 300 days.

Best Practices

There are best practices an employer can establish to be prepared to handle any subsidy award notices they receive.

As discussed above, the receipt of a Marketplace subsidy notification from HHS does not mean that the employer will be subject to a pay-or-play penalty; however, ALEs who wish to avoid potential penalties should appeal subsidies granted to full-time employees that they believe were in error. The IRS has not released much information on when it will begin sending assessable payment letters, but timely appealing erroneous subsidies received by full-time employees will put one more layer in between the employer and the IRS once that process gets underway. Now that ACA reporting for 2015 is over (aside from correcting name/TIN mismatch issues), we can expect the IRS to begin their enforcement shortly.

About the authors. This alert was prepared for LassiterWare Insurance Agency by Stacy Barrow and Mitch Geiger.  Mr. Barrow and Mr. Geiger are employee benefits attorneys with Marathas Barrow Weatherhead Lent LLP, a premier employee benefits, executive compensation and employment law firm.  They can be reached at or

The information provided in this alert is not, is not intended to be, and shall not be construed to be, either the provision of legal advice or an offer to provide legal services, nor does it necessarily reflect the opinions of the agency, our lawyers or our clients.  This is not legal advice.  No client-lawyer relationship between you and our lawyers is or may be created by your use of this information.  Rather, the content is intended as a general overview of the subject matter covered.  This agency and Marathas Barrow Weatherhead Lent LLP are not obligated to provide updates on the information presented herein.  Those reading this alert are encouraged to seek direct counsel on legal questions.

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