IRS Proposes Guidelines for ACA “Individual Mandate”

The Journal of Accountancy reports that proposed regulations issued by the IRS this week provides guidance on handling the Sec. 5000A “individual mandate” under 2010’s health care reform legislation, including the definition of those government programs that do not provide minimum essential health care coverage (REG-141036-13). 

They also provide a hardship exemption for individuals who obtained coverage through an exchange for 2014 during the open enrollment period. Such individuals may claim an exemption for the period before their coverage is effective without obtaining an exemption certificate, notes the Journal of Accountancy. 

Under Sec. 5000A, starting this year, a taxpayer is liable for a penalty if the taxpayer or any nonexempt dependent does not have minimum essential health care coverage in a month included in that tax year. Married taxpayers filing a joint return are jointly liable for the payment. 

Government programs 

Under the proposal, the Medicaid program (42 U.S.C. §1396 et seq.) is considered to provide minimum essential health care coverage, but some Medicaid coverage that provides limited benefits does not. 

These limited-coverage programs include coverage of individuals with high medical expenses who would otherwise be ineligible for Medicaid because of their income, optional coverage of family planning services, coverage of tuberculosis-related services, coverage of pregnancy-related services, and coverage that is limited to providing emergency medical care. 

However, since each state is allowed to determine what type of coverage to extend to individuals with high medical expenses who would otherwise be ineligible for Medicaid because of their income, the regulations permit the secretary of Health and Human Services (HHS) and the IRS to recognize a state’s Medicaid coverage for such individuals as minimum essential coverage if it is comprehensive enough to qualify.   

The proposed regulations also clarify that minimum essential coverage excludes any coverage, whether insurance or otherwise, that consists solely of excepted benefits. 

Other sections of the proposal cover specific health care coverage options, including: 

• Health reimbursement arrangements (HRAs)
• Cafeteria plans  
• Wellness programs
• Hardship exemptions 

 Simplified method for determining premium 

For determining whether an individual who is not eligible for coverage under an employer-sponsored plan is exempt from the shared-responsibility payment because the individual cannot afford minimum essential coverage, the final regulations require individuals to calculate the cost of coverage for a bronze-level health insurance plan in an exchange for the individual and all covered family members. When no bronze plan is available that would cover all family members, the final regulations require adding together the premiums for coverage for each individual. In the preamble to the proposed regulations, the IRS is asking for alternative methods for determining the cost of the premiums for family coverage. 

Calculating the monthly penalty 

The proposed regulations would amend the final regulations on how to calculate the Sec. 5000A penalty. The final regulations provide that the penalty is imposed on the lesser of (1) the sum of monthly penalty amounts “for each individual in the shared responsibility family” (i.e., all nonexempt individuals for whom the taxpayer is liable for a shared-responsibility payment) or (2) the sum of the national average bronze plan premiums for the shared responsibility family. Because the monthly penalty amount is intended to apply only to the individual, and not to the entire family, the proposed regulations amend (1) above to remove the clause “for each individual in the shared responsibility family.” The second part of the formula is unchanged.

Source:  Journal of Accountancy at http://www.journalofaccountancy.com/News/20149497.htm