Source: https://www.federalregister.gov/documents/2013/08/30/2013-21157/shared-responsibility-payment-for-not-maintaining-minimum-essential-coverage
Timestamp: 2017-08-18 11:33:36
Document Index: 81620183

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Federal Register :: Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage
A Rule by the Internal Revenue Service on 08/30/2013
53646-53664 (19 pages)
https://www.federalregister.gov/d/2013-21157 https://www.federalregister.gov/d/2013-21157
The collection of information contained in these regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork and Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-0074. The collection of information in these final regulations is in § 1.5000A-3 and § 1.5000A-4. The information is necessary to determine whether the shared responsibility payment provision applies to a taxpayer, and, if it applies, the amount of the penalty. The likely respondents are individuals required to file Federal income tax returns under section 6012(a)(1).
The Treasury Department and the IRS considered a rule requiring coverage for a majority of days in a month but chose the one-day rule because it provides administrative convenience for both taxpayers and the IRS. Without the one-day rule, taxpayers and the IRS would need to determine the number of days each person in a shared responsibility Start Printed Page 53647family is covered in each month of a taxable year. Accordingly, the final regulations do not adopt this recommendation. The Treasury Department and the IRS will reconsider this rule if future developments indicate that the rule is being abused, for example, if individuals obtain coverage for a single day in a month over the course of several months in a year.
A commentator requested that the final regulations provide that an individual who has submitted an application for Medicaid but is awaiting approval for enrollment have minimum essential coverage while the application is pending approval. In general, Medicaid coverage is granted retroactively to the date the application is filed. Section 5000A(a) requires that an individual have minimum essential coverage for a month. If retroactive coverage is granted, an applicant has minimum essential coverage. If the application is denied, the applicant does not have minimum essential coverage. Accordingly, the final regulations do not adopt this recommendation. However, an individual without coverage may be eligible for an exemption, such as a short coverage gap exemption. See § 1.5000A-3 and 45 CFR 155.605.
Section 5000A places liability for a dependent's lack of minimum essential coverage on the taxpayer who may claim the individual as a dependent. Section 5000A does not provide that this liability may be assigned to another taxpayer, even if the other taxpayer has a legal obligation to provide the child's health care. Accordingly, the final regulations do not adopt this recommendation. However, HHS has addressed the situation described in the comments in recently issued guidance, permitting Exchanges to grant a hardship exemption under 45 CFR 155.605(g)(1) to the custodial parent for a child in this situation if the child is ineligible for coverage under Medicaid or the Children's Health Insurance Program (CHIP). See HHS Center for Consumer Information & Insurance Oversight, Guidance on Hardship Exemption Criteria and Special Enrollment Periods (June 26, 2013).
As explained previously in section I.B.1. of this preamble, section 5000A(b)(3) provides that a taxpayer is liable for the shared responsibility payment for an individual without minimum essential coverage if the individual is the taxpayer's dependent as defined in section 152. Determining when a taxpayer is liable for an adopted child's health care under numerous and varying state laws would introduce considerable administrative difficulty and uncertainty into the implementation and administration of section 5000A. Accordingly, the final regulations do not modify the rule for determining liability for the shared responsibility payment attributable to children adopted or placed in foster care during a taxable year. Start Printed Page 53648
The proposed regulations do not specifically address whether and to what extent Medicaid premium assistance programs are minimum essential coverage. Commentators recommended that, to preserve affected Medicaid beneficiaries' ability to receive the premium tax credit under section 36B, Medicaid premium assistance programs, which are intended to supplement comprehensive coverage, be excluded from the definition of minimum essential coverage. Commentators referred to, in particular, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) state plan option Start Printed Page 53649(commonly referred to as the “Katie Beckett option”), coverage under an optional Medicaid coverage group authorized by the Family Opportunity Act of 2006 (FOA), home and community based services waivers, and “Katie Beckett” waivers.
Section 134(a) of TEFRA (Pub. L. 97-248) added section 1902(e)(3) of the Social Security Act (42 U.S.C. 1396a(e)(3)), under which states may provide Medicaid to a disabled child who requires an institutional level of care (such as that provided in a nursing facility) without regard to the income of the child's parent(s). A child eligible under this option is eligible for full Medicaid benefits. Enrollment of the child in private health insurance is not required as a condition of eligibility under the TEFRA option. Whenever a Medicaid beneficiary is enrolled in other coverage, Medicaid serves as the secondary payer. Thus, if a child enrolled in Medicaid under this option also has other coverage, Medicaid will serve as the secondary payer, and in that sense will wrap around the child's private insurance coverage. Because an eligible child receives full Medicaid benefits, the coverage provided is minimum essential coverage.
The final regulations reserve on whether Medicaid coverage provided to a medically needy individual is minimum essential coverage. It is anticipated that future regulations that will be effective starting in 2014 will provide that Medicaid coverage provided to a medically needy individual is not government-sponsored minimum essential coverage. However, certain coverage of this type may be recognized as minimum essential coverage by the HHS Secretary, in Start Printed Page 53650consultation with the Treasury Secretary, under section 5000A(f)(1)(E).
The proposed regulations provide that a government-sponsored program (as described in § 1.5000A-2(b)(2) of the proposed regulations) is not an eligible employer-sponsored plan. However, some individuals are eligible for minimum essential coverage under government-sponsored plans by reason of employment with the United States government. For example, the Nonappropriated Fund Health Benefits Program of the Department of Defense, established under section 349 of the National Defense Authorization Act for Fiscal Year 1995 (Pub. L. 103-337; 10 U.S.C. 1587 note), is offered by an instrumentality of the Department of Defense to its employees. Accordingly, the final regulations provide that the Start Printed Page 53651Nonappropriated Fund Health Benefits Program is a government-sponsored program and an eligible employer-sponsored plan. The Treasury Department and the IRS are considering whether other government-sponsored programs are eligible employer-sponsored plans.
Under section 5000A(f)(4) and § 1.5000A-1(b)(2) of the final regulations, an individual is treated as having minimum essential coverage for a month if the individual is a bona fide resident of a United States possession for the month, or if the month occurs during any period described in section 911(d)(1)(A) or section 911(d)(1)(B) that is applicable to the individual. Section 911(d)(1)(A) is applicable to a citizen of the United States who has a tax home outside the United States and is a bona fide resident of a foreign country or countries during an uninterrupted period that includes an entire taxable year. Section 911(d)(1)(B) is applicable to a U.S. citizen or U.S. resident (as defined in section 7701(b)) who has a tax home outside the United States and is present in a foreign country or countries for at least 330 full days during a period of 12 consecutive months.
Section 5000A(d)(2)(A) does not make a distinction between full and less than full membership in a sect or division. Accordingly, the final regulations do not adopt this recommendation. However, as explained in the preamble to the proposed regulations, the section 5000A religious conscience exemption is administered by HHS through Exchanges. The HHS MEC regulations permit adult members of a sect or division to apply for the exemption on behalf of their minor children. See 45 CFR 155.600 (definitions of applicant and application filer); 45 CFR 155.605(c)(1) (eligibility standards for religious conscience exemption). Those Start Printed Page 53652regulations further provide, however, that once a child turns 21 years of age, to maintain the religious conscience exemption the child must reapply for the exemption and attest to membership individually. See 45 CFR 155.605(c)(2).
In the alternative, the commentator requested treating incarcerated individuals whose Medicaid benefits have been suspended as having minimum essential coverage. An individual incarcerated pending disposition of charges whose Medicaid benefits have been suspended remains enrolled in Medicaid, is entitled to receive benefits for healthcare provided outside the state prison system, and is not required to re-enroll in Medicaid at the end of incarceration. Thus, treating the individual as covered under Medicaid is consistent with § 1.5000A-1(b)(1), which provides that an individual has minimum essential coverage for the month when the individual is enrolled in and entitled to receive benefits under a program or plan identified as minimum essential coverage in § 1.5000A-2 for at least one day in the month. Accordingly, an individual incarcerated pending disposition of charges whose Medicaid benefits have been suspended is covered under minimum essential coverage, and no revision to the regulations is necessary to address the commentator's concern.
Several commentators suggested allowing an exemption or safe harbor for individuals whose income early in the taxable year appears to entitle them to the lack of affordable coverage exemption and who, as a result, do not obtain minimum essential coverage. If these individuals have large increases in income later in the year, they may be liable for the shared responsibility payment if no other exemption applies. The final regulations do not adopt this recommendation because it is not administrable. The IRS does not have the monthly income data necessary to verify eligibility for the proposed safe harbor or exemption. However, as explained in this preamble, the HHS MEC regulations provide for a prospective hardship exemption based on a lack of affordable coverage determined on the basis of projected household income. Individuals may mitigate potential adverse consequences of mid-year increases in household income by applying for this hardship exemption prospectively. Start Printed Page 53653
The proposed regulations do not address wellness program incentives. Commentators recommended determining an individual's required contribution without regard to any wellness program incentives that, if received, would lower premiums. A commentator asked that premiums for the applicable plan for an individual residing in a rating area in a state participating in the Individual Market Wellness Program Demonstration Project described in section 2705(l) of the Public Health Service Act (42 U.S.C. 300gg-4(l)) disregard any premium-based wellness incentive requirements, including incentives relating to tobacco use. The proposed minimum value regulations disregard wellness program Start Printed Page 53654incentives, except those related to tobacco use, in determining an employee's required contribution under section 36B(c)(2)(C)(i). It is anticipated that future guidance under section 5000A will address the treatment of wellness program incentives in determining the required contribution in a manner consistent with the treatment of these incentives in final rulemaking under section 36B.
The same commentator inquired whether the filing threshold rule for dependents in § 1.5000A-3(f)(2)(ii) of the proposed regulations affects the definition of household income in § 1.5000A-1(d)(7). Under § 1.5000A-3(f)(2)(ii) a dependent's applicable filing threshold is the same as the threshold for the taxpayer claiming the dependent. Section 5000A(e)(2) allows an exemption for an individual whose household income is less than the amount of gross income specified in section 6012(a)(1) with respect to the taxpayer. The taxpayer referred to in section 5000A(e)(2) is the taxpayer claiming the dependent. Accordingly, a dependent claimed for an exemption deduction uses the family's household income and the taxpayer's applicable filing threshold in determining eligibility for the below filing threshold exemption. This treatment has no effect on the household income definition.
The proposed regulations provide that an individual qualifies for the short coverage gap exemption if the continuous period without minimum essential coverage is less than three full calendar months and is the first short coverage gap in the individual's taxable year. Further, in determining whether a gap in coverage qualifies as a short coverage gap, the length of the period without minimum essential coverage is measured by reference to calendar months (for example, January or February) in conjunction with the one day rule in § 1.5000A-1(b). Therefore, if an individual is enrolled in and entitled to receive benefits under a plan identified as minimum essential coverage for one day in a calendar month, the month is not included in the continuous period when applying the short coverage gap exemption.
Some commentators stated that the coverage gap in the earlier year should include months in the later year in which an individual has no minimum essential coverage. Other commentators recommended that all continuous periods in a year begin no earlier than January 1, thereby ignoring any gaps in coverage in the preceding year. The final regulations adopt neither suggestion. To assist taxpayers in timely filing returns and in the interests of efficient tax administration, the final regulations provide that a continuous period terminates no later than the last day of a taxable year. In addition, for the later year when the same administrative concerns do not apply, consistent with section 5000A(e)(4)(B)(i), the final regulations provide that a continuous Start Printed Page 53655period may include months in an earlier year.
This section lists the captions contained in §§ 1.5000A-1 through 1.5000A-5.Start Printed Page 53656
(a) In general. For each month during the taxable year, a nonexempt Start Printed Page 53657individual must have minimum essential coverage or pay the shared responsibility payment. For a month, a nonexempt individual is an individual in existence for the entire month who is not an exempt individual described in § 1.5000A-3.
(2) Are required to file a Federal income tax return for the taxable year.Start Printed Page 53658
(15) Rating area. Rating area has the same meaning as in § 1.36B-1(n).
(a) In general. Minimum essential coverage means coverage under a government-sponsored program (described in paragraph (b) of this section), an eligible employer-sponsored plan (described in paragraph (c) of this section), a plan in the individual market (described in paragraph (d) of this section), a grandfathered health plan (described in paragraph (e) of this section), or other health benefits coverage (described in paragraph (f) of this section). Minimum essential coverage does not include coverage described in paragraph (g) of this section. All terms defined in this section apply for purposes of this section and § 1.5000A-1 and §§ 1.5000A-3 through 1.5000A-5.
(2) Government-sponsored program special rules— (i) Coverage authorized under Section 1115 of the Social Security Act. [Reserved]
(ii) Medicaid for the medically needy programs. [Reserved]
(iii) Limited benefits TRICARE programs. [Reserved]
(g) Excepted benefits not minimum essential coverage. Minimum essential coverage does not include any health insurance coverage that consists solely Start Printed Page 53659of excepted benefits described in section 2791(c)(1), (c)(2), (c)(3), or (c)(4) of the Public Health Service Act (42 U.S.C. 300gg-91(c)).
(C) Required contribution for part-year period. For each individual Start Printed Page 53660described in paragraph (e)(3)(ii)(A) or (e)(3)(ii)(B) of this section, affordability under this paragraph (e)(3) is determined separately for each employment period that is less than a full calendar year or for the portions of an employer's plan year that fall in different taxable years of the individual. Coverage under an eligible employer-sponsored plan is affordable for a part-year period if the annualized required contribution for self-only coverage (in the case of the employee) or family coverage (in the case of a related individual) under the plan for the part-year period does not exceed the required contribution percentage of the individual's household income for the taxable year. The annualized required contribution is the required contribution determined under paragraph (e)(3)(ii)(A) or (e)(3)(ii)(B) of this section for the part-year period times a fraction, the numerator of which is 12 and the denominator of which is the number of months in the part-year period during the individual's taxable year. Only full calendar months are included in the computation under this paragraph (e)(3)(ii)(C).
(D) Employer contributions to health reimbursement arrangements. [Reserved]
(E) Wellness program incentives. [Reserved]
(iii) Examples. The following examples illustrate the application of this paragraph (e)(3). Unless stated otherwise, in each example, each individual's taxable year is a calendar year, the individual is ineligible for any other exemptions described in this section for a month, the rate of premium growth has not exceeded the rate of income growth since 2013, and the individual's employer offers a single plan that uses a calendar plan year and is an eligible employer-sponsored plan as described in § 1.5000A-2(c).
(B) Applicable plan—(1) In general. Except as provided in paragraph (e)(4)(ii)(B)(2) of this section, applicable plan means the single lowest cost bronze plan available in the individual market through the Exchange serving the rating area in which the individual resides (without regard to whether the individual purchased a qualified health plan through the Exchange) that would cover all individuals in the individual's nonexempt family. For purposes of this paragraph (e)(4), an individual's nonexempt family means the family (as defined in § 1.5000A-1(d)(4)) that includes the individual, excluding any family members who are otherwise exempt under section 1.5000A-3 or are treated as eligible for coverage under an eligible employer-sponsored plan under paragraph (e)(3)(i) of this section. The premium for the applicable plan takes into account rating factors (for example, an individual's age or tobacco use) that an Exchange would use to determine the cost of coverage.
(ii) Optional simplified method for applicable plan identification. [Reserved]Start Printed Page 53661
(C) Credit allowable under section 36B. For purposes of paragraph (e)(4)(ii)(A) of this section, maximum amount of any credit allowable under section 36B means the maximum amount of the credit that would be allowable to the individual, or to the taxpayer who can properly claim the individual as a dependent, under section 36B if all members of the individual's nonexempt family enrolled in a qualified health plan through the Exchange serving the rating area where the individual resides.
Unmarried employee with no dependents. (i) Taxpayer G is an unmarried individual with no dependents. G is ineligible to enroll in any minimum essential coverage other than coverage in the individual market for all months in 2016. The annual premium for the lowest cost bronze self-only plan in G's rating area (G's applicable plan) is $5,000. The adjusted annual premium for the second lowest cost silver self-only plan in G's rating area (G's applicable benchmark plan within the meaning of § 1.36B-3(f)) is $5,500. In 2016 G's household income is $40,000, which is 358% of the Federal poverty line for G's family size for the taxable year.
(ii) Under paragraph (e)(4)(ii)(C) of this section, the credit allowable under section 36B is determined pursuant to section 36B. With household income at 358% of the Federal poverty line, G's applicable percentage is 9.5. Because each month in 2016 is a coverage month (within the meaning of § 1.36B-3(c)), G's maximum credit allowable under section 36B is the excess of G's premium for the applicable benchmark plan over the product of G's household income and G's applicable percentage ($1,700). Therefore, under paragraph (e)(4)(ii)(A) of this section, G's required contribution is $3,300. Under paragraph (e)(1) of this section, G lacks affordable coverage for 2016 because G's required contribution ($3,300) exceeds 8% of G's household income ($3,200).
Family. (i) In 2016 Taxpayers M and N are married and file a joint return. M and N have two children, P and Q. M, N, P, and Q are ineligible to enroll in minimum essential coverage other than coverage in the individual market for a month in 2016. The annual premium for M, N, P, and Q's applicable plan is $20,000. The adjusted annual premium for M, N, P, and Q's applicable benchmark plan (within the meaning of § 1.36B-3(f)) is $25,000. M and N's household income is $80,000, which is 347% of the Federal poverty line for a family size of 4 for the taxable year.
(ii) Under paragraph (e)(4)(ii)(C) of this section, the credit allowable under section 36B is determined pursuant to section 36B. With household income at 347% of the Federal poverty line, the applicable percentage is 9.5. Because each month in 2016 is a coverage month (within the meaning of § 1.36B-3(c)), the maximum credit allowable under section 36B is the excess of the premium for the applicable benchmark plan over the product of the household income and the applicable percentage ($17,400). Therefore, under paragraph (e)(4)(ii)(A) of this section, the required contribution for M, N, P, and Q is $2,600. Under paragraph (e)(1) of this section, M, N, P, and Q have affordable coverage for 2016 because their required contribution ($2,600) does not exceed 8% of their household income ($6,400).
Family with some members eligible for government-sponsored coverage. (i) In 2016 Taxpayers U and V are married and file a joint return. U and V have two children, W and X. U and V are ineligible to enroll in minimum essential coverage other than coverage in the individual market for all months in 2016; however, W and X are eligible for coverage under CHIP for 2016. The annual premium for U, V, W, and X's applicable plan is $20,000. The adjusted annual premium for the second lowest cost silver plan that would cover U and V (the applicable benchmark plan within the meaning of § 1.36B-3(f)) is $12,500. U and V's household income is $50,000, which is 217% of the Federal poverty line for a family size of 4 for the taxable year. W and X do not enroll in CHIP coverage.
(ii) Under paragraph (e)(4)(ii)(C) of this section, the credit allowable under section 36B is determined pursuant to section 36B. With household income at 217% of the Federal poverty line, the applicable percentage is 6.89. Each month in 2016 is a coverage month (within the meaning of § 1.36B-3(c)) for U and V, but no months in 2016 are coverage months for W and X because they are eligible for CHIP coverage. The maximum credit allowable under section 36B is the excess of the premium for the applicable benchmark plan over the product of the household income and the applicable percentage ($9,055). Therefore, under paragraph (e)(4)(ii)(A) of this section, the required contribution is $10,945. Under paragraph (e)(1) of this section, U, V, W, and X lack affordable coverage for 2016 because their required contribution ($10,945) exceeds 8% of their household income ($4,000).
(h) Individuals with hardship exemption certification—(1) In general. An individual is an exempt individual Start Printed Page 53662for a month that includes a day on which the individual has in effect a hardship exemption certification described in paragraph (h)(2) of this section.
(iii) Special applicable dollar amount for individuals under age 18. If an individual has not attained the age of 18 before the first day of a month, the applicable dollar amount for the individual is equal to one-half of the applicable dollar amount (as expressed in paragraph (b)(2)(ii) of this section) for the calendar year in which the month Start Printed Page 53663occurs. For purposes of this paragraph (b)(2)(iii), an individual attains the age of 18 on the anniversary of the date when the individual was born. For example, an individual born on March 1, 1999, attains the age of 18 on March 1, 2017.
(d) Examples. The following examples illustrate the provisions of this section. In each example the taxpayer's taxable year is a calendar year and all members of the taxpayer's shared responsibility family are ineligible for any of the exemptions described in § 1.5000A-3 for a month.
(2) Limitations on liens and levies. If a taxpayer fails to pay the shared responsibility payment imposed by this section and §§ 1.5000A-1 through 1.5000A-4, the Secretary will not file notice of lien on any property of the taxpayer, or levy on any property of the taxpayer for the failure.
(c) Effective/applicability date. This section and §§ 1.5000A-1 through 1.5000A-4 apply for months beginning after December 31, 2013.
1.5000A-3 1545-0074
1.5000A-4 1545-0074