Guidance on Health Care Law Is Issued

By Sally P. Schreiber, J.D.

From the IRS

The IRS released a package of guidance on 2010's health care reform legislation, finalizing proposed regulations on minimum essential coverage (T.D. 9705), identifying the hardship exemptions from the Sec. 5000A individual shared-responsibility penalty for which individuals are not required to provide exemption certificates (Notice 2014-76), and providing indexing adjustments for certain calculations under the Sec. 36B premium tax credit and Sec. 5000A (Rev. Proc. 2014-62).

Minimum Essential Coverage Regulations

Under Sec. 5000A, starting in 2014, a taxpayer is liable for a shared-responsibility payment if the taxpayer or any nonexempt individual whom the taxpayer may claim as a dependent for a tax year does not have minimum essential health care coverage in a month included in that tax year.

The regulations on minimum essential coverage issued in November finalize regulations proposed in January 2014 (REG-141036-13), with a few changes in response to comments.

The final regulations did not change the definition in the proposed regulations of minimum essential coverage for medically needy individuals under Medicaid, which is defined as coverage offered to individuals with high medical expenses who would be eligible for Medicaid but for their income level. This type of coverage generally does not qualify as minimum essential coverage. Commenters agreed that Medicaid coverage for medically needy individuals that is not comprehensive should not be minimum essential coverage. The final regulations retain the rule in the proposed regulations that Medicaid coverage for medically needy individuals is not government-sponsored minimum essential coverage under Sec. 5000A(f)(1)(A). In some circumstances, however, the U.S. Department of Health and Human Services (HHS) will recognize Medicaid coverage for medically needy individuals as minimum essential coverage.

The proposed regulations asked for comments about how amounts paid as part of a cafeteria plan should be considered in determining whether coverage is affordable for purposes of Sec. 5000A. In response to those comments, the final regulations provide that, for purposes of determining the affordability of coverage, the required contribution is reduced by any contributions made by an employer under a Sec. 125 cafeteria plan that (1) may not be taken as a taxable benefit; (2) may be used to pay for minimum essential coverage; and (3) may be used only to pay for medical care as defined in Sec. 213.

The proposed regulations treated health reimbursement arrangement (HRA) amounts that were made newly available in the current plan year under an HRA that was integrated with an eligible employer-sponsored plan as taken into account in determining the employee's or related individual's required contribution if an employee could use them to pay the employee's share of premiums for coverage under the plan.

Although no comments on HRAs were received under these regulations, comments were received under a related provision under Sec. 36B. The final regulations clarify that, in general, HRA contributions count toward affordability of health care coverage, and not minimum value, if an employee may use the HRA contributions to pay premiums for the primary plan only or to pay cost sharing or benefits not covered by the primary plan in addition to premiums.

Under the Sec. 36B proposed regulations, HRA amounts that may be used only for cost sharing are counted for purposes of minimum value and not for affordability. Accordingly, HRA contributions that can be used only to pay for cost sharing do not count toward affordability. The Sec. 36B final regulations will provide that HRA contributions that can be used for premiums and cost sharing will only count for affordability and not minimum value. As a result, HRA contributions will not be double counted.

Hardship Exemptions

A final change from the proposed regulations concerns the treatment of hardship exemptions. Although the rules generally require individuals to obtain certificates from health exchanges to prove they are exempt from the requirement to obtain health care coverage because they qualify under a hardship exemption, the proposed regulations provided several specific circumstances for which a taxpayer would not be required to obtain a certificate. The final rules remove the references to specific hardship circumstances and instead provide that a taxpayer may claim a hardship exemption on a federal income tax return without obtaining an exemption certification for any month that includes a day on which the taxpayer satisfies the requirements of a hardship described in published guidance from the IRS and HHS.

Notice 2014-76, issued concurrently with the final regulations, contains the following hardship exemptions for tax years beginning after Dec. 31, 2013:

  • The exemptions described in 45 C.F.R. Section 155.605(g)(3) (income below a federal income tax return filing level) or (g)(5) (for unaffordable coverage);
  • The exemption described in HHS guidance issued Oct. 28, 2013, relating to individuals enrolled in Marketplace coverage on or before March 31, 2014;
  • The exemption for individuals "in line" to enroll in coverage through the Marketplace on March 31, 2013;
  • The exemption in HHS's March 31, 2014, guidance for individuals who applied for the children's health insurance program (CHIP) during the 2014 open enrollment period and were found eligible;
  • The exemption for individuals who enrolled outside the Marketplace in minimum essential coverage that is effective on or before May 1, 2014;
  • The exemption for individuals eligible for services through an Indian health care provider; and
  • The exemption for individuals with specified household incomes who reside in a state that did not expand Medicaid.
Determining Premium Tax Credit Amounts

Finally, Rev. Proc. 2014-62 contains the applicable percentage tables under Sec. 36B(b)(3)(A)(i) for determining a taxpayer's premium tax credit for 2016 (Rev. Proc. 2014-62). The revenue procedure also contains the required contribution percentage for plan years beginning in 2016 for purposes of determining whether Sec. 5000A applies to a taxpayer.

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