The individual responsibility requirement of the Affordable Care Act (ACA) requires individuals who do not qualify for an exemption to have minimum essential coverage or pay a tax. To help people with incomes between 100 and 400 percent of the federal poverty level (FPL) afford coverage, the ACA offers enrollees in marketplace coverage who do not have minimum essential coverage available through a public program or an employer advance premium tax credits (PTC).
The value of the PTC is set at the lesser of A) the actual cost an individual or family pays for coverage or B) the difference between the premium of a "benchmark" plan and the contribution toward the cost of coverage that the individual or family is required to make. The level of the contribution depends on the individual or family's modified adjusted gross household income. The benchmark plan is the second-lowest-cost silver (70 percent actuarial value) level plan available to the family or individual (as discussed below) in their marketplace.
The ACA also imposes a tax on large employers that do not offer their full-time employees affordable and minimum value coverage if a full-time employee obtains PTCs to purchase individual coverage.
Rules implementing these ACA provisions (which are here, of course, greatly simplified) were promulgated by the Internal Revenue Service in 2012 (PTCs), 2013 (individual responsibility), and 2014 (employer responsibility). These rules have been updated by guidance, and in some cases by amendments, several times since.
On December 14, the IRS released final rules clarifying issues raised by and filling gaps in its previous rules. The rules finalize proposed rules published in July, However, as explained further below, the IRS decided not to finalize the most controversial provisions of its proposed rule, which dealt with employer opt-out payments (through which an employer pays an employee to decline employer-offered coverage), choosing to leave in place for now earlier guidance.
Safe Harbors
To begin, the rules clarify when certain "safe harbors"—which protect individuals who improperly receive advance PTC from having to pay it back—apply. If an exchange determines at enrollment that a taxpayer's household income will be at least 100 percent of the FPL but will not exceed 400 percent, and unexpectedly the taxpayer discovers when filing taxes that household income was in fact below 100 percent of FPL for the year, the taxpayer will normally not have to pay back the advance PTC. The rule clarifies that this safe harbor does not apply if the applicant provided incorrect information intentionally or with reckless disregard for the facts. It defines reckless disregard of the facts to occur when "the taxpayer makes little or no effort to determine whether the information provided to the Exchange is accurate under circumstances that demonstrate a substantial deviation from the standard of conduct a reasonable person would observe." The regulation further states that "A disregard of the facts is intentional if the taxpayer knows the information provided to the Exchange is inaccurate."
Similarly, if an individual is determined by an exchange to be eligible for PTCs because the individual is not eligible for Medicaid, CHIP, or a similar government-sponsored program (such as the Basic Health Program), but the individual is later determined to have been eligible for such a program, the individual does not have to pay back the advance PTC paid on his or her behalf. Again, this would be true only if the individual did not provide incorrect information to the exchange intentionally or with reckless disregard for the facts.
The preface of the rule clarifies that the IRS, and not the marketplace, is responsible for enforcing this exception and must make an initial showing of reckless or intentional misbehavior. Individuals are only responsible for information they provide to the exchange, and not for inaccurate information provided by third parties, such as employers (although taxpayers are responsible for inaccurate information they provide affecting the eligibility of their dependents). Moreover, an individual does not act recklessly when following the advice of an authorized navigator, agent, broker, certified application counselor, or other authorized assister as long as the taxpayer provided the authorized advisor with necessary and accurate information.
Technical Employer Issues
Two of the rules deal with technical employer coverage issues. The first clarifies that coverage under the Defense Department Nonappropriated Fund Health Benefits Program is considered employer rather than government program coverage. It is considered to be minimum essential coverage for purposes of determining eligibility for PTCs if it is affordable and provides minimum value (60 percent actuarial value and substantial hospital and physician services coverage).
The second clarifies that if an individual declines an opportunity to enroll in affordable minimum value employer coverage for a year (and thus is ineligible for PTCs for that year), but he or she is not given an opportunity to enroll in employer coverage for one or more succeeding years, the individual is not disqualified from PTCs for the succeeding year or years (and a large employer may be treated as not having offered coverage for those years for purposes of the employer mandate penalty). This rule applies regardless of whether coverage is offered on a calendar or fiscal year basis.
Opt-Out Payments
The most extensive, complex, and, as it turned out, controversial provisions of the proposed rules dealt with "opt-out arrangements," under which employers offer employees a cash opt-out payment if the employee declines health coverage offered by the employer. Under the proposed rule, the value of certain opt-out payments would have been considered as an employee contribution for deciding whether the coverage an employer offers is affordable. If an employee must pay more than 9.66 percent of household income for employer coverage, it is not affordable and the employee may be eligible for PTC; the employer is then subject to the employer responsibility requirement if the employee receives PTC. Considering opt-out payments for determining affordability thus makes more employees eligible for PTC and subjects more employers to the employer responsibility penalty.
The IRS proposed to treat "unconditional" opt-out payments, in which an employee who declines coverage receives the payment without meeting any other conditions, as simply increasing the cost of coverage for purposes of determining affordability. Conditional payments, however, would not affect affordability under the proposed rule if they were conditional on the employee declining employer coverage and having coverage other than in the individual market.
The IRS is not finalizing this rule at this time. Until the IRS publishes a final rule, individuals and employers can rely on earlier guidance on opt-out payments and on the proposed rule (including a special exception for collective bargaining agreements entered into before December 16, 2015). Under the earlier notice, opt-out payments are effectively treated as an additional cost of employer coverage for determining affordability for purposes of PTC eligibility and compliance with the individual mandate for employees. Employers are not required to consider opt-out payments established prior to December 16, 2015 as affecting affordability of coverage for reporting purposes or for the application of the employer mandate, but opt-out payments adopted after that date must be considered as affecting affordability.
Eligibility For Other Coverage
The rule provides that an individual who is eligible to enroll in minimum essential coverage because of a relationship to another person (such as an under-age-26 adult child of an employee with coverage) is not treated as having minimum essential coverage for purposes of determining PTC eligibility if the other person does not claim a personal exemption for the related individual, unless the individual is in fact enrolled in the minimum essential coverage.
If an individual enrolled in a qualified health plan (QHP) through the marketplace for which PTC are being paid becomes eligible to enroll in minimum essential coverage other than individual coverage outside of the marketplace, including Medicaid or CHIP, the individual must notify the marketplace to terminate PTC eligibility. Individuals who fail to do so may be responsible for repaying the PTC received.
Under the final regulations, however, if an individual notifies the marketplace that he or she is eligible for minimum essential coverage or for coverage through Medicaid or CHIP, but the marketplace does not discontinue coverage for the first calendar month following the notification, the individual will be treated as not having been enrolled in minimum essential coverage or in Medicaid or CHIP until the first day of the second following month and does not have to pay back the advance PTC for the first month.
In general, an individual is only eligible for advance PTC if the individual's share of the premium is paid no later than the unextended due date of the individual's income tax return for the year of coverage (or, alternatively, the individual's premiums are entirely covered by advance PTC). Under the final regulations, if an individual is denied advance PTC and appeals, prevails in the appeal, and is granted retroactive coverage, the individual may instead have up until the 120th day following the date of the appeals decision for paying his or her share of the premiums due for the retroactive coverage. This rule does not determine the date by which the successful appellant must pay health plan premiums to effectuate coverage.
The final regulations clarify that if a QHP is terminated part way through a month (for example, because the enrollee dies), the PTC amount due for the month is the lesser of A) the premiums for the month minus any refunds, or B) the excess of the full benchmark plan premium over the full contribution amount owed by the enrollee for the month.
Benchmark Premiums
Since the amount of PTC which eligible individuals or families may receive often depends on the benchmark plan premium, the determination of the benchmark premium is a key issue under the ACA. The final rule further specifies how to identify the benchmark plan premium, with the changes applicable for taxable years beginning after December 31, 2018. The rule includes fifteen examples of how its benchmark premium rules operate.
Pediatric Dental Benefits
Qualified health plans (QHPs) offered through marketplaces must include all essential health benefits, including pediatric dental benefits. However, under the ACA a plan that does not offer pediatric dental benefits may still be a QHP if standalone dental plans (SDP) that provide pediatric dental benefits are offered through the marketplace. Prior regulations provided that if an individual enrolled in both a QHP and a separate SDP, the amount of the individual's premium used for calculating the PTC for which the individual is eligible would be determined by adding to the QHP premium the portion of the SDP premium attributable to pediatric dental benefits.
The final rule would extend this principle to determining the premium of the benchmark plan. Previously the second-lowest-cost silver plan could be a plan that did not offer pediatric dental benefits. Individuals who enrolled in such a plan would not get all essential health benefits, as they would not receive pediatric dental coverage. For coverage years beginning after December 31, 2018, if one or more of the silver plans in the marketplace do not provide pediatric dental benefits, the benchmark plan premium will be the second-lowest-cost option among
- the premiums for silver plans offered to the individual and his family that include pediatric dental coverage, and
- the aggregate of the premium for each silver plan excluding pediatric dental coverage offered to the individual and his or her family plus the second-lowest cost portion of the premium of an SDP available to the coverage family that is attributable to pediatric dental benefits.
If no member of the taxpayer's family is eligible for pediatric dental benefits, a $0 amount is added to the premium for SDP pediatric benefits. If there is only one silver level QHP available, it would become the benchmark plan. If only one SDP is available, its premium for pediatric dental coverage would be added to the premiums of available QHPs without dental coverage for benchmark plan ranking purposes.
Family Members Covered By Different Plans
Family members may often reside in more than one rating areas in a state or in other states — for example, a child may attend college in another community. Under the prior rule, when members of a covered family resided in different states and enrolled in separate QHPs, the premium for the benchmark plan was the sum of the premiums of the applicable benchmark plans for each group of family members living in the same state.
Under the final rule, the benchmark plan premium is determined by summing the premiums for the applicable benchmark plans for each family member or group of family members offered in the rating area in which the individual or group resides, whether in the same state or different states. If all members of the covered group live in a different rating area from where the taxpayer resides, the benchmark premium is based on the rating area where the coverage family resides.
Where one or more silver plans offered through a marketplace will not cover all the members of a taxpayer's coverage family (for example, the taxpayer and a dependent parent), the benchmark premium may be the premium for a single policy or the combined premiums for more than one policy, whichever costs less. Under the new rule, the benchmark plan is
- the second-lowest-cost single plan that covers all coverage family members (plus, where applicable, the pediatric dental care portion of a single SDP that covers all family members), or,
- if no single plan is available, the second-lowest-cost sum of the premiums for self-only coverage for each member of the coverage family (plus, where applicable, the pediatric dental care portion of the premium of an SDP) who resides in the same location.
In the proposed rule, the IRS requested comment on whether it should simply use the sum of the premiums of self-only plans that covered family members, but it rejected this alternative in the final rule.
If a taxpayer enrolls another individual (for example, a child) in coverage attesting that he or she (the parent) will claim the other individual as a tax dependent, but fails to do so, and the individual enrolled in coverage does not file a tax return, the question arises as to whether the taxpayer or the covered individual is responsible for filing and reconciling ATPC and actual PTC due. The final rule clarifies that it is the responsibility of the taxpayer, and not the individual who was covered as a putative dependent, to file and reconcile.
The rule clarifies that when multiple families are covered under the same policy (for example a taxpayer and a non-dependent adult child) and APTC payments are made for coverage under the plan, the marketplace must allocate enrollment premiums for reporting purposes based on the proportion of each family's applicable benchmark plan premiums.
The rule clarifies that for reporting purposes, if an individual is enrolled in a plan after the first day of a month, no enrollment or benchmark premiums should be reported by the marketplace for that month. For information reported by the marketplace after January 1, 2019, however, if an individual is enrolled in coverage after the first day of a month and enrollment is effective on the date of the individual's birth, adoption, or placement in foster care or on the date of a court order, or if coverage is terminated before the end of the month, the exchange must report the benchmark premium for the full month and the full amount of the enrollment premium for the month minus any amount refunded due to termination of coverage.
The final rules will generally take effect for taxable years beginning after December 31, 2016, although taxpayers may usually rely on rules in their favor for years ending after December 31, 2013 and the proposed rules governing benchmark plans and certain marketplace reporting requirements will only apply for years beginning after December 31, 2018.
The Fate Of ACA Rules Under The New Administration And Congress
Of course, with the looming possibility that the incoming Congress and Trump administration may attempt to repeal parts of the ACA after taking office, rules that only go into effect in 2019 may never go into effect. Rules that are in effect as of inauguration day can only be changed through notice and comment rulemaking. To change a rule, the new administration would have to publish a proposed amended rule, accept comments, and promulgate a new final rule, offering some explanation as to why a change is necessary. The effective date of rules not yet in effect can be postponed for up to 30 days, but the underlying rule can still only be changed through notice and comment rulemaking. Rules that have been proposed but not finalized by the time Trump takes office can be withdrawn.
Major rules submitted to Congress within the last 60 legislative days in the House or 60 session days of the Senate are subject to the Congressional Review Act. Under the CRA, the rules can be invalidated by a joint resolution of Congress. This would probably include rules finalized since late May.
The CRA would likely apply to a number of Medicare rules, but the only significant ACA rules that I can think of that that would be subject to the CRA are the short-term and excepted benefits rule and the final benefit and payment parameters rule, due later this month. It is hard to imagine that Congress would block the payment rule, as it is necessary if there is to be an individual market next year, but it is possible that the may take aim at the short-term and excepted benefits rule. The IRS premium tax credit rule analyzed in this post is not identified as a major rule subject to the CRA.
Deadline For January 1 Coverage Extended
On the evening of December 15, CMS announced that it was extending the deadline for signing up for January 1, 2017 coverage on HealthCare.gov until December 19 at 11:59 Pacific standard time. The announcement stated that hundreds of thousands of individuals had selected plans over the past few days and that nearly a million consumers had left their contact information at the call center to hold their place in line for January 1 coverage.
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