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Certifications of employee eligibility for subsidies

April 15, 2015 Article 6 min read
Jonathon Trionfi

The Affordable Care Act (ACA) requires health insurance Exchanges to send a notice to employers regarding employeeswho purchase coverage through an Exchange and qualify for a health insurance subsidy. These notices are also called“Section 1411 Certifications” because the notice requirement is contained in Section 1411 of the ACA.

The Section 1411 Certification is part of the process established by the Department of Health and Human Services (HHS)for verifying that only eligible individuals receive health insurance subsidies. Both state-run and federally facilitatedExchanges are required to send these certifications to employers. For 2015, it is expected that HHS will issue thecertifications in batches, beginning in spring 2015.

These certifications are not directly related to the ACA’s shared responsibility rules for applicable large employers (ALEs).Starting in 2016, the Internal Revenue Service (IRS) will contact ALEs to inform them of their potential liability for ashared responsibility penalty for 2015, and it will provide them with an opportunity to respond. Employers that receivecertifications may appeal a subsidy determination to help ensure, as much as possible, that employees are not mistakenlyreceiving subsidies. Appealing subsidy determinations may also help limit an ALE’s potential liability for a sharedresponsibility penalty.

Affected employers

The Exchanges are required to provide the certifications to all employers with employees who purchase coveragethrough an Exchange and qualify for a health insurance subsidy. This includes ALEs that are subject to the ACA’s sharedresponsibility rules and small employers that do not qualify as ALEs. Also, for efficiency reasons, Exchanges can eithersend the certifications on an employee-by-employee basis as subsidy determinations are made, or the Exchanges cansend the certifications to employers for a group of employees.

Health insurance subsidies

There are two federal health insurance subsidies available for coverage purchased through an Exchange—premium taxcredits and cost-sharing reductions. Both of these subsidies vary in amount based on the taxpayer’s household income,and they both reduce the out-of-pocket costs of health insurance for the insured.

  • Premium tax credits are available for people with somewhat higher incomes (up to 400 percent of the federalpoverty level), and they reduce out-of-pocket premium costs for the taxpayer.
  • Reduced cost-sharing is available for individuals who qualify to receive the premium tax credit and have lowerincomes (up to 250 percent of the federal poverty level). Through cost-sharing reductions, these individuals havelower out-of-pocket costs at the point of service (for example, lower deductibles and copayments).

To be eligible for a health insurance subsidy, a taxpayer:

  • Must have a household income for the year between 100 percent and 400 percent of the federalpoverty level for the taxpayer’s family size
  • May not be claimed as a tax dependent of another taxpayer
  • Must file a joint return, if married
  • Cannot be eligible for minimum essential coverage (such as coverage under a government sponsoredprogram or an eligible employer-sponsored plan)

Employees who may enroll in employer-sponsored plans, and individuals who may enroll in the plan because of arelationship with the employee, are generally considered eligible for minimum essential coverage if the plan is affordableand provides minimum value.

The requirements of affordability and minimum value do not apply if an employee actually enrolls in any employer sponsoredminimum essential coverage, including coverage provided through a cafeteria plan, a health FSA, or an HRA,but only if the coverage does not consist solely of excepted benefits. Thus, if an employee enrolls in any employer sponsoredminimum essential coverage, the employee is ineligible for a subsidy.

Key point

Employees who are eligible for employer-sponsored coverage that is affordable and providesminimum value are not eligible for a subsidy. This is significant because the ACA’s shared responsibility penaltyfor ALEs is triggered when a full-time employee receives a subsidy for coverage under an Exchange. Anemployee who is not eligible for a subsidy may still be eligible to enroll in a health plan through an Exchange.However, this would not result in a shared responsibility penalty for the employer.

Section 1411 certification

The ACA directed HHS to establish a program for verifying whether an individual meets the eligibility standards forreceiving an Exchange subsidy. As part of this verification process, an Exchange must notify the employer when itdetermines that an employee is eligible for subsidized coverage.

Final regulations issued by HHS on March 27, 2012, specify the content requirements for the Section 1411 Certifications.

Section 1411 certificationsmust:

  • Identify the employee
  • Provide that the employee has been determined to be eligible for advancepayments of a health insurance subsidy
  • Indicate that, if the employer has 50 or more full-time employees, the employermay be liable for a penalty under Code Section 4980H
  • Describe the employer’s appeal rights

Appeal rights

When an employer receives a certification regarding an employee’s eligibility for an Exchange subsidy, the employer mayappeal the determination to correct any information about the health coverage it offers to employees. The appeals processcan help:

  • Minimize the employee’s potential liability to repay advance payments of the subsidy that he or she was noteligible to receive
  • Protect the employer from being incorrectly assessed with a tax penalty under the shared responsibility rules (if theemployer is an ALE). If the appeal is successful and the employee does not receive an Exchange subsidy, theemployee cannot trigger penalties for an ALE under the shared responsibility rules

Final regulations issued by HHS on Aug. 30, 2013, established general parameters for the employer appeal process. Astate-run Exchange may have its own appeals process or it may follow the federal appeals process established by HHS. Ineither case, the Exchange must:

  • Give employers at least 90 days from the date of the Exchange notice to request an appeal
  • Allow employers to submit relevant information to support the appeal
  • Not limit or interfere with an employer’s right to make an appeal request
  • Accept appeal requests made by telephone, by mail, via the Internet, or in person (if the Exchange is capable ofreceiving in-person appeal requests) and provide assistance in making the appeal request if this assistance is needed

The appeals entity must provide written notice of the appeal decision within 90 days of the date the appeal request isreceived, if administratively feasible.

Also, employers may develop policies to allow an employee to enroll in employer-sponsored coverage outside an openenrollment period when the employee is determined to be ineligible for Exchange subsidies as a result of an employer’sappeal decision.

Key point

HHS’ final regulations clarify that an appeals decision in favor of the employee’s eligibility for asubsidy does not foreclose any appeal rights the employer may have for a penalty assessment under CodeSection 4980H. Thus, while ALEs that receive certifications may appeal a subsidy determination to helpensure, as much as possible, that employees are not mistakenly receiving subsidies, they are not requiredto appeal a subsidy determination to preserve their rights to appeal an IRS assessment of a penalty tax.

Other employer considerations

To help avoid incorrect subsidy determinations, HHS encourages employers to educate their employees about the detailsof employer-sponsored health coverage. This includes information on whether their plans are affordable and provideminimum value. Employees enrolling in Exchange coverage will generally complete an Employer Coverage Tool thatgathers information about the employers’ group health plans. HHS encourages employers to assist employees with theirExchange applications by providing information regarding the employer-sponsored coverage through the EmployerCoverage Tool.

In addition, employers should remember that the ACA amended the Fair Labor Standards Act (FLSA) to includewhistleblower protections for employees. Employees are protected from retaliation for reporting alleged violations of theACA. Employees are also protected from retaliation for receiving a subsidy when enrolling in an Exchange plan. If anemployer violates the ACA’s whistleblower protections, it may be required to reinstate the employee, as well as provideback pay (with interest), compensatory damages, and attorney fees.

The information provided is only a generalsummary and is being distributed with theunderstanding that PM Group Benefit AdvisorsII, LLC is not providing legal, tax, accounting, orother professional advice, position, or opinionson specific facts or matters and, accordinglyassumes no liability whatsoever in connectionwith its use. Content ©2013 Zywave, Inc. Allrights reserved.

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