Effective Jan. 1, the IRS has begun assessing Employer Shared Responsibility payment penalties (ESRPs) on Applicable Large Employers (ALEs) that failed to offer coverage in accordance with 2015 ESRP mandate.
Under the Affordable Care Act, ALEs - defined as employers with over 100 FTEs - must offer minimum value coverage at an affordable price to all full-time employees, or pay the ESRP penalty. Employers in violation of the ESRP mandate receive an IRS 226J letter
and have just 30 days to respond to avoid further consequence.
A handful of public entities have received ESRP penalty letters and have solicited assistance in responding to the IRS from the health pools in which they participate. Known fines levied against public entities have ranged from $500,000 to more than $2 million.
Fines stated in an enforcement letter may be based upon the maximum penalty and assume the fine is levied against all covered lives in the plan. Upon review, the actual penalty is frequently only applicable to a small number of covered lives, making the required penalty payment substantially lower. It appears the fines result from reporting errors by a public entity's payroll vendor or a mistake in form filing, especially on the IRS 1094-C Transmittal Form.
QEI Patron Arthur J Gallagher has prepared an Employer Shared Responsibility Penalty Assessment Toolkit
with several essential resources to help employers understand the process associated with receiving an ESRP letter and potential ways to respond. The resource includes an article, employer FAQs, a flowchart with fundamental information needed to understand and respond to an ESRP letter, and clarification of the codes and transitional relief that was available in 2015 Form 1095-C filings.
Health benefit pools may wish to advise their members of this potential issue and encourage members to contact the pool if an ESRP penalty letter is received. Pools can help members understand the issue, uncover the cause of a penalty, and determine the actual amount that should be paid by the public entity, if any.