Coincident with its issuing final regulations on the topic, the Internal Revenue Service (“IRS”) has issued a Fact Sheet explaining individual shared responsibility for health care coverage. Here are the highlights:
Starting in 2014, the individual shared responsibility provision calls for each individual to have basic health insurance coverage (known as minimum essential coverage), qualify for an exemption, or make a shared responsibility payment when filing a federal income tax return. Individuals will not have to make a payment if coverage is unaffordable, if they spend less than three consecutive months without coverage, or if they qualify for an exemption for several other reasons, including hardship and religious beliefs.
The IRS has issued final regulations on the individual shared responsibility provision. Additionally, earlier this year, the Centers for Medicare & Medicaid Services at the Department of Health and Human Services (“HHS”) issued final regulations on exemptions from the provision and on minimum essential coverage. Together, these regulations explain the shared responsibility provision and lay out the eligibility rules for receiving an exemption and the process by which individuals can receive certificates of exemption.
Highlights of the Regulations
A principle in implementing the individual shared responsibility provision is that the shared responsibility payment should not apply to any taxpayer for whom coverage is unaffordable, who has other good cause for going without coverage, or who goes without coverage for only a short time. The regulations include several rules to implement this principle. For example:
• Hardship Exemption Clarified. The statute gives HHS authority to exempt individuals determined to “have suffered a hardship with respect to the capability to obtain coverage.” In developing these regulations, HHS considered several particular circumstances that provide good cause to go without coverage. To provide clarity for taxpayers facing these circumstances, the HHS regulations enumerate several situations that will always be treated as constituting a hardship and therefore allow for an exemption. Hardship exemptions include for example:
–Individuals who an Exchange projects will have no offer of affordable coverage; and
— Individuals who would be eligible for Medicaid but for a state’s choice not to expand Medicaid eligibility.
The HHS regulations also provide that the hardship exemption will be available on a case-by-case basis for individuals who face other unexpected personal or financial circumstances that prevent them from obtaining coverage.
• Partial-Month Coverage Counts for the Month. The IRS regulations provide that an individual is treated as having coverage for a month so long as he or she has coverage for any one day of that month.
• Payment Waived for First Part of Coverage Gap Spanning Multiple Years. The statute provides an exemption for gaps in coverage of less than three months.
Additional Details about the Regulations
The regulations explain that minimum essential coverage includes, at a minimum, all of the following statutory categories:
• Employer-sponsored coverage (including COBRA coverage and retiree coverage)
• Coverage purchased in the individual market • Medicare Part A coverage • Medicaid coverage • Children’s Health Insurance Program (CHIP) coverage • Certain types of Veterans health coverage • TRICARE
Minimum essential coverage does not include certain specialized coverage, such as coverage only for vision care or dental care, workers’ compensation, or coverage only for a specific disease or condition.
Specific Rules and Process for Receiving an Exemption
Consistent with the statute, the final regulations provide nine categories of individuals who are exempt from the shared responsibility payment. These categories are as follows:
• Individuals who cannot afford coverage;
• Taxpayers with income below the filing threshold;
• Members of Indian tribes;
• Individuals who experience short coverage gaps.
• Religious conscience;
• Members of a health care sharing ministry;
• Incarcerated individuals; and • Individuals who are not lawfully present.
The statute specifies that the religious conscience exemption and the hardship exemption are available exclusively through a Health Insurance Marketplace or Exchange. Four categories of exemptions are available exclusively from the IRS through the filing process – the exemptions for individuals who are not lawfully present, taxpayers with household income below the filing threshold, individuals who cannot afford coverage, and individuals who experience short coverage gaps. The rule provides a choice to individuals for the exemptions in the three remaining categories – members of a health care sharing ministry, individuals who are incarcerated, and members of Indian tribes. These exemptions can be obtained either through a Health Insurance Marketplace or through the tax return filing process.
Starting in early 2015, individuals filing a tax return for 2014 will indicate which members of their family (including themselves) are exempt from the provision. For family members who are not exempt, the taxpayer will indicate whether they had insurance coverage. For each non-exempt family member who doesn’t have coverage, the taxpayer will owe a shared responsibility payment.