HHS and IRS Proposed Regulations for Health Insurance Exchanges

Practical Law Legal Update 3-507-2556 (Approx. 6 pages)

HHS and IRS Proposed Regulations for Health Insurance Exchanges

by PLC Employee Benefits & Executive Compensation

HHS Regulations Addressing Eligibility Determinations

On August 12, 2011, the Department of Health and Human Services (HHS) issued proposed regulations to implement the health insurance exchanges requirement under the Affordable Care Act (ACA). The guidance expands on proposed regulations issued in July 2011 governing the establishment of the exchanges, which are competitive marketplaces that permit individuals and small employers to purchase private health insurance beginning in 2014. The exchanges:

Must be established by all states.
Are intended to facilitate the direct comparison of available health insurance options.

The new regulations propose eligibility standards for:

Individual participation in Qualified Health Plans (QHPs), which are health plans that are certified to be offered through an exchange.
Employer participation in the Small Business Health Options Program (SHOP), a program through which insurance options for small businesses are offered.

The regulations also include:

Eligibility categories for cost-sharing reductions to be used by the exchanges in making eligibility determinations.
Detailed rules by which an exchange can determine whether a primary taxpayer is eligible to receive advance payments of the premium tax credit (see IRS Regulations Addressing the QHPs and Premium Tax Credit).

Eligibility for Individual Enrollment in a QHP

Under the proposed regulations, the exchanges determine whether individuals are eligible for exchange participation. The proposed eligibility process is designed to:

Be consumer-orientated.
Minimize administrative burden and opportunities for fraud and abuse.

To be eligible for enrollment in a QHP, an individual must:

Be a citizen or national of the US, or a non-citizen lawfully present in the US, and expected to be so for the entire period for which the individual seeks enrollment in a QHP.
Not be incarcerated, unless pending the disposition of charges.
Intend to reside in the service area of the exchange through which the individual is requesting coverage.

Spouses or tax dependents who do not live in the same exchange service area in which their primary taxpayer is enrolled can enroll in a QHP through the exchange that services the area:

Where they reside or intend to reside.
Where the primary taxpayer resides or intends to reside.

In addition to determining whether an individual meets the eligibility standards, the regulations propose that an exchange must:

Determine whether the individual is permitted to enroll in a QHP when the individual actually seeks coverage.
Accept an application and make an eligibility determination at any time during the year.
Provide a timely written notice to each individual when the eligibility determination is final. The notice should be in plain language and provide the individual with:
- a record of the steps already taken and remaining actions needed to complete the eligibility and enrollment process; and
- information regarding the individual's right to appeal.
Verify individual information before using it to determine the individual's eligibility for enrollment in a QHP. The exchange first relies on electronic data and then, if the exchange is unable to verify information through electronic sources, request documentation from individuals. Data sources to be used in the verification process include records from the:
- Social Security Administration;
- Department of Homeland Security; and
- IRS.

The exchanges must follow specific procedures for redetermining an individual's eligibility during a year. Under this redetermination process:

The individual is primarily responsible for providing the exchange with updated information during the year. Reminders are not sent out.
The exchange must notify the individual's QHP if it determines that the individual's eligibility has changed.
The individual must provide the exchange with any updated information regarding the individual's eligibility (for example, residency or immigration status) within 30 days of the change.
The exchange must redetermine the enrollee's eligibility on an annual basis. An individual that fails to sign and return the redetermination notice does not automatically lose coverage. Instead the exchange proceeds in determining the individual's eligibility based on the information available.
An individual can appeal any eligibility determination or redetermination made by the exchange.

Standards for Employer Participation in a SHOP

The regulations propose the following standards for small employer participation in a SHOP:

Small employers must offer employees coverage through either the SHOP that serves:
- the employer's principle business address; or
- the employee's primary worksite.
Each SHOP should establish a uniform process and timeline for employers seeking to become qualified employers through the SHOP.
Qualified employers must make QHPs available to employees using the process developed by the SHOP.
Qualified employers must provide information to employees about the method for selecting and enrolling in a QHP. At a minimum, the information, which must also be provided to employees hired outside the initial enrollment or annual open enrollment periods, should include:
- the timeframe for enrollment;
- instructions on how to access the SHOP website and other tools to compare QHPs; and
- the SHOP toll-free hotline.
The SHOP can provide employers with a toolkit explaining key information that the employers can then furnish to their employees.
The SHOP must establish a window of time during which a newly hired employee can select coverage through a QHP.
A qualified employer must inform the SHOP within 30 days if the eligibility of individuals or their dependents changes. The SHOP must then inform the QHP.
An employer can begin participating in a SHOP at any time. However, once the employer begins participating, it must follow an annual election period.
If an eligible employer does not take action during the annual election period, it continues to be enrolled in the plan selected for the previous year, if available.
A qualified employer that stops being a small employer solely because of an increase in the number of employees can continue to participate in a SHOP. The employer continues to be treated as a qualified employer until it either:
- fails to meet the other eligibility criteria; or
- elects to no longer participate in SHOP.

IRS Regulations Addressing the QHPs and Premium Tax Credit

Additional proposed regulations, issued by the IRS for tax years ending after December 31, 2013, provide guidance on the refundable premium tax credit under the ACA in the context of QHPs under the health insurance exchanges. The exchanges will make advance determinations of eligibility for individuals who:

Enroll in coverage through an exchange.
Seek financial assistance.

Under the proposed regulations, the exchanges, using information available at the time of enrollment, will determine:

Whether the individual satisfies the income and other requirements for advance credit payments.
The amount of the advance payments, which are made:
- on a monthly basis;
- to the insurer of the QHP in which the individual enrolls.

The regulations include guidelines for determining who is an "applicable taxpayer" eligible for the premium tax credit. An applicable taxpayer is eligible for premium assistance for the month that the individual, or the individual's spouse or dependent, is:

Enrolled in one or more QHPs through an exchange.
Not eligible for "minimum essential coverage," other than coverage in the individual market, defined to include:
- government-sponsored programs;
- eligible employer-sponsored programs;
- grandfathered health plans; and
- certain other health benefits coverage.

Individuals who are not lawfully present in the US or are incarcerated (other than incarceration pending disposition of charges) may not be covered by a QHP through an exchange.

The regulations also include detailed guidelines, including numerous examples, for both:

Calculating the premium assistance credit amount, defined as the sum of the premium assistance amounts for all coverage months in the tax year for individuals in the taxpayer's family.
Reconciling the actual credit for the tax year computed on a taxpayer's tax return with the amount of advance payments. Under the reconciliation rules:
- if a taxpayer's credit amount is greater than the amount of the taxpayer's advance payments for a tax year, the taxpayer may receive the excess as an income tax refund;
- if a taxpayer's advance payments are greater than the taxpayer's credit amount, the taxpayer owes the excess as an additional income tax liability.

HHS and IRS Proposed Regulations for Health Insurance Exchanges | Practical Law