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How to successfully appeal an exchange notice from the health insurance marketplace

Some companies across the country may have experienced receiving exchange notices from the health insurance marketplace informing them they may have failed to comply with the Affordable Care Act.

These notices, if not addressed, could lead to a potential audit of a company’s ACA compliance by the Internal Revenue Service—regardless of what happens with the legislation Congress may or may not pass this year to modify or repeal parts of the ACA. If a company becomes involved in such an IRS audit, it could face thousands of dollars in penalties under the ACA.

Swift and diligent action to appeal these exchange notices is critical to keeping your clients off the IRS radar.

Let’s consider the process undertaken by Company A, which receives a copy of an exchange notice from the health insurance marketplace. The notice informs the company that an employee has submitted an application for health coverage through the marketplace.

This application is the catalyst for the marketplace to investigate whether the company, which employs more than 50 people, is meeting its responsibilities under the ACA. Under section 4980H of the tax code, companies with more than 50 full-time employees are classified as applicable large employers, or ALEs, under the ACA. These ALEs must offer health coverage that is “affordable” and provides “minimum value” to all of their full-time employees. Conversely, ALEs must make an employer shared responsibility payment to the IRS if at least one of their full-time employees receives a premium tax credit for purchasing individual coverage on the marketplace, referred to as the Exchange. Those penalties can add up to thousands of dollars for companies that fail to provide their full-time employees the required health insurance coverage.

The notice informs Company A of the appeal process through which the marketplace will consider evidence provided by both the company and employee to determine if the employee is eligible for premium tax credits or cost-sharing reductions from the Exchange. Additionally, the company has 90 days from the date of the notice to request an appeal from the marketplace.

The company then prepares an appeal packet that will demonstrate it had offered the appropriate health care insurance coverage to its eligible employees. The appeal packet contains:

• A summary of benefits and coverage, a short plain-language summary of your health plan’s benefits;

• An enrollment/waiver form; and

• Monthly reporting and analysis of full-time/part-time status of employees.

The monthly reporting and analysis is a critical piece of information. The analysis reviews the company’s employee attendance and payroll records to provide the data necessary to demonstrate the full-time or part-time status of each employee for each month of the tax reporting year in which health insurance is offered.

Company A uses a look-back methodology for the employee analysis. This compares information from the “standard measurement period,” the initial 12-month measurement period before the plan year went into effect, with the “standard stability period,” which is the designated plan year in which health insurance was offered to full-time employees. The completed analysis shows the employee has not exceeded the required 130 hours per month threshold to be treated as a full-time employee during the plan year.

Company A signs an appeal form and sends it and the appeals packet to the marketplace.

In mid-October, Company A receives an additional notice saying the company’s appeal has been accepted and is under review. The company is given another 30 days to provide more details.

The company decides to take advantage of the opportunity to provide more information. Before the 30-day deadline is up, it sends the marketplace a second appeal packet, which includes:

• A statement explaining the look-back measurement method used in the analysis, how that method was applied to assess the part-time status of the employee in question, and whether that employee was offered coverage that met minimum value and the amount of the self-only monthly contribution rate that satisfied the affordability ceiling;

• The analytics showing the employee’s employment periods, the employee’s status (part-time), and the monthly income during which the employee was offered affordable coverage;

• The analytics to show the hours of service during the initial measurement period to establish the accrual of the employee over this period, the result of which was an average of less than 130 hours per month, resulting in part-time status;

Demonstrators outside the Supreme Court in advance of the court's rulling that the ACA was constitutional
A demonstrator in support of U.S. President Barack Obama's health-care law, the Affordable Care Act (ACA), holds up a "ACA is Here to Stay" sign after the U.S. Supreme Court ruled 6-3 to save Obamacare tax subsidies outside the Supreme Court in Washington, D.C., U.S., on Thursday, June 25, 2015. The U.S. Supreme Court upheld the nationwide tax subsidies that are a core component of President Barack Obama's health-care law rejecting a challenge that had threatened to gut the measure and undercut his legacy. Photographer: Andrew Harrer/Bloomberg

• A payroll ledger provided by the client that showed wages for the plan year period, along with the employee’s W-2 from the year before; and

• The exchange notice and the appeal notice that were previously received to indicate the case/reference numbers.

After that, with confidence, the company waits for a decision. Eight months after the first notice is received, Company A is informed that the marketplace has ruled in its favor—a long process, but, in this instance, one with a successful outcome because Company A was prepared.

If your company or one of your clients’ businesses receives its own exchange notice, here are some suggestions to help you submit an appeal that will achieve a successful outcome:

• A swift response to an exchange notice from the marketplace is important to head off a potential downstream IRS ACA audit.

• Maintaining complete employee records in an accessible database format or in QuickBooks can save you time and headaches in analyzing these records to generate reports to the marketplace. A critical part of a successful appeal effort is maintaining the detailed, accurate recordkeeping of monthly time and attendance and payroll information for each employee. Being prepared to provide this documentation will save you time and money.

• Consider using a third party to help collect and analyze your employee data if you do not readily have the software and in-house expertise to expeditiously and knowledgeably respond to Marketplace requests for information. Getting expert assistance can help you and your employees get back to what matters most, focusing on the success of your business.

• Once you have submitted your appeal, continue to be responsive to further opportunities to provide information.

Be patient and follow the process. If you have been diligent in your efforts to respond to the marketplace, your chances of successfully appealing an exchange notice are excellent.

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