Proposed Regulations Address Minimum Essential Coverage

Practical Law Legal Update 8-523-8922 (Approx. 5 pages)

Proposed Regulations Address Minimum Essential Coverage

by PLC Employee Benefits & Executive Compensation

IRS Proposed Regulations

Under the ACA, nonexempt individuals (see Exemptions) must either:

Maintain minimum essential coverage.
Make a shared responsibility payment on their federal income tax return.

Minimum essential coverage includes:

Coverage under certain government sponsored programs (for example, Medicare coverage).
Coverage under an eligible employer-sponsored plan.
Coverage under a grandfathered health plan (see Practice Note, Grandfathered Health Plans under the ACA).
Other health coverage, as determined by the Secretary of HHS.

Health coverage consisting of certain "excepted benefits" (for example, limited-scope dental or vision benefits) is not minimum essential coverage.

The shared responsibility payment is generally the sum of monthly penalty amounts for all months in a tax year in which any nonexempt individual for whom the taxpayer is liable did not have minimum essential coverage. Monthly penalties are computed as the greater of either:

A flat dollar amount.
A percentage of the individual's income.

Minimum Essential Coverage

Regarding the minimum essential coverage requirement, the IRS proposed regulations make the following clarifications, among others:

An employee is treated as eligible for coverage under an eligible employer-sponsored plan for each month in the plan year if the employee could have enrolled in the plan for that month during an open or special enrollment period.
An individual who is eligible for coverage under his employer's eligible plan is not treated as eligible as a "related individual" for coverage under a plan offered by another individual's employer. As a result, if two members of a family are employed and their respective employers offer self-only and family coverage under eligible employer-sponsored plans, each individual determines the affordability of coverage using the premium for the self-only coverage offered by the individual’s employer.
For an employee who is eligible for coverage under an eligible employer-sponsored plan, the employee's required contribution is the portion of the annual premium he would pay for the lowest cost self-only coverage.
The required contribution for a related individual's coverage is determined using the premium for the lowest cost coverage under the eligible employer-sponsored plan in which the employee and all related individuals in the employee's family (who are not otherwise exempt) are eligible to enroll.
For an individual who is properly claimed as a dependent, the applicable filing threshold is that of the taxpayer who claims the individual as a dependent. Therefore, if a taxpayer is exempt under the household income exemption (see Exemptions), any individual the taxpayer properly claims as a dependent is also exempt.

Shared Responsibility Payments

Regarding shared responsibility payments, the IRS proposed regulations clarify that:

A taxpayer is liable for the payment imposed with respect to any individual for a month in a tax year for which the taxpayer may claim a personal exemption deduction for the dependent for that tax year. Whether the taxpayer actually claims the individual as a dependent for the year does not affect the taxpayer's liability for the shared responsibility payment for the individual.
A taxpayer who is an exempt individual (see Exemptions) remains liable for a shared responsibility payment imposed for a nonexempt dependent who does not have minimum essential coverage.
The applicable family size for purposes of identifying the appropriate bronze level plan includes only the nonexempt members of the taxpayer's shared responsibility family who do not have minimum essential coverage.

Exemptions

The ACA provides certain exemptions from the minimum essential coverage requirement, which include:

Religious conscience objections.
Members of health care sharing ministries.
Indian tribes.
Households with income below the minimum threshold for filing a tax return.
Short coverage gaps.
Hardship.
Households where the minimum amount that must be paid in premiums exceeds 8% of household income.
Incarceration.
Persons not lawfully present in the US.

COBRA and Retiree Health Coverage

The IRS proposed regulations clarify that coverage provided by an employer to a former employee, including coverage under COBRA and retiree health coverage:

Is coverage under an eligible employer-sponsored plan.
Qualifies as minimum essential coverage.

HHS Proposed Regulations

The HHS proposed regulations assign certain functions to the health insurance exchanges under the ACA, which include:

Determining eligibility for and granting certificates of exemption from the shared responsibility payment for not maintaining minimum essential coverage.
Outlining substantive and procedural requirements that other types of individual coverage must fulfill in order to be certified as minimum essential coverage under the IRC.

For more information, see Practice Note, Health Insurance Exchange and Related Requirements under the ACA.

The HHS proposed regulations specifically address the verification process related to eligibility for exemptions. The regulations provide that, unless a request for modification is granted, the exchange must verify or obtain information to determine that an applicant is eligible for an exemption. The regulations also establish verification criteria for the listed exemptions.

The HHS proposed regulations provide, among other things, that:

Exchanges will issue certificates of exemption for the religious conscience and hardship exemptions.
An individual may be eligible for multiple exemptions simultaneously.
An applicant must submit a new application for each year for which the applicant would like to be considered for an exemption through the exchange. An exemption will only be provided for a calendar year that the applicant submitted an application.

IRS Final Regulations

The IRS final regulations, which adopt proposed regulations without change, provide that for tax years beginning before January 1, 2015, an eligible employer-sponsored plan is affordable for related individuals if the portion of the annual premium the employee must pay for self-only coverage (the required contribution percentage) does not exceed 9.5% of the taxpayer's household income.

Proposed Regulations Address Minimum Essential Coverage | Practical Law