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ACA employer mandate penalty notices: Don't panic!

06.13.17

Four steps to take if you get an ACA Tax Penalty Notice from the IRS
It’s been almost a year since the IRS filing deadline for 2015 Forms 1094-C and 1095-C. Most expected the IRS to issue employer penalty notices related to the 2015 calendar year in late 2016. To date, the IRS has not issued a single penalty notice. Employers who did not comply with the law are subject to penalty and there is a good chance that the IRS will issue 2015 penalty notices soon. So what do you need to do?

If your company receives an ACA penalty notice, you should follow these steps:

  1. Scrutinize the information closely — do not assume the IRS claim is accurate
  2. Be ready to refute the IRS’s claim — be sure to gather all of the pertinent facts
  3. Do not forego your appeal rights — consult with outside tax experts or your legal team to make sure you understand them
  4. Contact a tax specialist for guidance — preferably one with ACA and IRS experience

The fate of the ACA is unknown, but the repeal legislation passed by the House in early May retained the employer mandate penalties for 2015. Thus, there is a good chance that any future repeal legislation will also retain the employer penalties for 2015 — and possibly 2016 and 2017.

The bottom line?
Don’t panic, be prepared, and get outside help if you need it. If you need specific information or help with your penalty notice, please contact our ACA consultant Bill Enck.

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Read this if you are a state Medicaid Director, State Medicaid Chief Information Officer, State Medicaid Project Manager, State Procurement Officer, or work in a State Medicaid Program Integrity Unit.

The Centers for Medicare & Medicaid Services (CMS) issued a Payment Error Rate Measurement (PERM) Final Rule on July 5, 2017, that made several changes to the PERM requirements. One important change was the updates to the Medicaid Eligibility Quality Control (MEQC) requirement. 

The Final Rule restructures the MEQC program into a pilot program that requires states to conduct eligibility reviews during the two years between PERM cycles. CMS has also introduced the potential for imposing disallowances or reductions in federal funding percentage (FFP) as a result of PERM eligibility error rates that do not meet the national standard. One measure states can use to lessen the chance of this happening is by successfully carrying out the requirements of the MEQC pilot. 

What states should know―important points to keep in mind regarding MEQC reviews:

  • Each state must have a team in place to conduct MEQC reviews. The individuals responsible for the MEQC reviews and associated activities must be separate from the state agencies and personnel responsible for Medicaid and Children’s Health Insurance Program (CHIP) policy and operations, including eligibility determinations.
  • States can apply for federal funding to help cover the costs of the MEQC activities. CMS encourages states to partner with a contractor in conducting the MEQC reviews.
  • The deadline to submit the state planning document to CMS is November 1 following the end of your state’s PERM cycle. If you are a Cycle 2 state, your MEQC planning document is due by November 1, 2019. 
  • If you are a Cycle 1 state, you are (or should be) currently undergoing the MEQC reviews.
  • There are minimum sample size requirements for the MEQC review period: 400 negative cases and 400 active cases (consisting of both Medicaid and CHIP cases) over a period of 12 months.
  • Upon conclusion of all MEQC reviews, states must submit a final findings report along with a corrective action plan that addresses all error findings identified during the MEQC review period.

CMS encourages states to utilize federal funding to carry out and fulfill MEQC requirements. BerryDunn has staff with experience in preparing Advanced Planning Documents (APD) and can assist your state in submitting an APD request to CMS for these MEQC activities. 

Check out the previously released blog, “PERM: Prepared or Not Prepared?” and stay tuned for upcoming blogs about specific PERM topics, including the financial impacts of PERM, and how each review phase will affect your state.   

For questions or to find out more, contact the team

Blog
PERM: Does MEQC affect states?

Federal contractors with the Centers for Medicare & Medicaid Services (CMS) have begun performing Payment Error Rate Measurement (PERM) reviews under the Final Rule issued in July 2017—a rule that many states may not realize could negatively impact their Medicaid budgets.

PERM is a complex process—states must focus on several activities over a recurring three-year period of time—and states may not have the resources needed to make PERM requirements a priority. However, with the Final Rule, this PERM eligibility review could have financial implications. 

After freezing the eligibility measurement for four years while undergoing pilot review, CMS has established new requirements for the eligibility review component and made significant changes to the data processing and medical record review components. As part of the Final Rule, CMS may implement reductions in the amount of federal funding provided to a state’s Medicaid and Children’s Health Insurance Program (CHIP) programs based on the error rates identified from the eligibility reviews. 

Since the issuance of the Final Rule in July 2017, Cycle 1 states are the first group of states to undergo a PERM cycle, including reviews of the data processing, medical record, and eligibility components. These states are wrapping up the final review activities, and Cycle 2 states are in the early stages of their PERM reviews.

How can your state prepare?

Whether your state is a Cycle 1, Cycle 2, or Cycle 3 state, there are multiple activities your Medicaid departments should engage in throughout each three-year period of time during and between PERM cycles: 

  • Analyzing prior errors cited or known issues, along with the root cause of the error
  • Identifying remedies to reduce future errors
  • Preparing and submitting required questionnaires and documents to the federal contractors for an upcoming review cycle
  • Assisting federal contractors with current reviews and findings
  • Preparing for and undergoing Medicaid Eligibility Quality Control (MEQC) planning and required reviews
  • Corrective action planning

Is your state ready?

We’ve compiled a few basic questions to gauge your state’s readiness for the PERM review cycle:

  • Do you have measures in place to ensure all eligibility factors under review are identifiable and that all federal and state regulations are being met? The eligibility review contractor (ERC) will reestablish eligibility for all beneficiaries sampled for review. This process involves confirming all verification requirements are in the case file, income requirements are met, placement in an accurate eligibility category has taken place, and the timeframe for processing all determinations meets federal and state regulations. 
  • Do you have up-to-date policy and procedures in place for determining and processing Medicaid or CHIP eligibility of an individual? Ensuring eligibility policies and procedures meet federal requirements is just as important as ensuring the processing of applications, including both system and manual actions, meet the regulations. 
  • Do you have up-to-date policy, procedures, and system requirements in place to ensure accurate processing of all Medicaid/CHIP claims? Reviewers will confirm the accuracy of all claim payments based on state and federal regulations. Errors are often cited due to the claims processing system allowing claims to pay that do not meet regulations.
  • Do you have a dedicated team in place to address all PERM requirements to ensure a successful review cycle? This includes staff to answer questions, address review findings, and respond to requests for additional information. During a review cycle, the federal contractors will cite errors based on their best understanding of policies and/or ability to locate required documentation. Responding to requests for information or reviewing and responding to findings in a timely manner should be a priority to ensure accurate findings. 
  • Have you communicated all PERM requirements and updates to policy changes to all Medicaid/CHIP providers? Providers play two integral roles in the success of a PERM review cycle. Providers must understand all claims submission requirements in order to accurately submit claims. Additionally, the medical record review component relies on providers responding to the request for the medical records on a sampled claim. Failure to respond will result in an error. Therefore, states must maintain communication with providers to stress the importance of responding to these requests.
  • Have you begun planning for the MEQC requirement? Following basic requirements identified by CMS during your state’s MEQC period, your state must submit a case planning document to CMS for approval prior to the MEQC review period. After the MEQC review, your state should be prepared to issue findings reports, including a corrective action plan as it relates to MEQC findings.

Need help piloting your state’s PERM review process?

BerryDunn has subject matter experts experienced in conducting PERM reviews, including a thorough understanding of all three PERM review components—eligibility, data processing, and medical record reviews. 

We would love to work with your state to see that measures are in place that will help ensure the lowest possible improper payment error rate. Stay tuned for upcoming blogs where we will discuss other PERM topics, including MEQC requirements, the financial impacts of PERM, and additional details related to each phase of PERM. For questions or to find out more, please email me
 

Blog
PERM: Prepared or not prepared?

A penalty letter doesn’t mean the IRS is correct, but it’s important you know what to do to avoid paying an erroneous penalty. 

The IRS has sent out penalty letters to businesses, non-profits, and government agencies indicating they are not in compliance with the ACA employer mandate for 2015.

The letters usually take the position that the employer owes a penalty based on information examined by the IRS, unless the employer can prove otherwise. This puts employers on the defensive, often based on incorrect facts.

Letters we’ve reviewed all assessed significant penalties against the employers. In two of the cases, penalties were more than $500,000. In these cases it appears that companies incorrectly stated that they didn’t offer health insurance coverage to at least 70% of full-time employees. Given the potential penalties involved, you cannot risk a sub-standard response to the IRS.

Because the process is new and there are many unknowns, including IRS errors in processing and interpretation of the forms, be prepared. If your company receives a penalty letter, here’s what we recommend to get you on the right track for working through the process:

  1. Find and review your original 2015 Forms 1094-C and 1095-C that you or your payroll company submitted to the IRS.
  2. Determine when you must respond to the IRS. You have 30 days from the date on the penalty notice letter to file a response.
  3. The employer penalties and how to address them are a tax matter. Get qualified tax advice from an outside expert who understands both tax and the ACA. Fortunately, we meet those criteria and would be delighted to help you. 

Even if you don’t receive one of the first penalty notices, it’s wise to keep abreast of the ACA issues.

Questions?
Contact Bill Enck for more information.

Blog
Guilty until proven innocent? ACA employer penalty letters are here

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