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IRS provides 2014 relief from individual mandate for certain limited health coverage

January 27, 2014

A new Notice provides relief from the Code Sec. 5000A individual shared responsibility payment for months in 2014 in which individuals have, under Medicaid and chapter 55 of Title 10, U.S.C. (medical and dental care for members and certain former members of the uniformed services, and for their dependents), limited-benefit health coverage that is not minimum essential coverage.

Background on individual mandate. Code Sec. 5000A, which was added by the Affordable Care Act (ACA), requires non-exempt U.S. citizens and legal residents for tax years ending after Dec. 31, 2013 to maintain minimum essential health insurance coverage (i.e., government-sponsored programs such as Medicare, Medicaid, Children’s Health Insurance Program; eligible employer-sponsored plans; plans in the individual market; certain grandfathered group health plans; and other coverage as recognized by Health and Human Services) or pay a penalty. This requirement is referred to as the “individual mandate,” and the penalty is often referred to as the “shared responsibility payment.”

Background on minimum essential coverage under the regs. On Aug. 30, 2013, IRS published final regs under Code Sec. 5000A (see Weekly Alert ¶  6  08/29/2013). The final regs provide that government-sponsored minimum essential coverage includes coverage under the Medicaid program under Title XIX of the Social Security Act (42 USC 1396) other than the following limited coverage under Medicaid:

 

…optional coverage of family planning services under section 1902(a)(10)(A)(ii)(XXI) of the Social Security Act (42 USC 1396a(a)(10)(A)(ii)(XXI)) (“family planning services Medicaid”),
…optional coverage of tuberculosis-related services under section 1902(a)(10)(A)(ii)(XII) of the Social Security Act (42 USC 1396a(a)(10)(A)(ii)(XII)) (“tuberculosis-related services Medicaid”),
…coverage of pregnancy-related services under section 1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) of the Social Security Act (42 USC 1396a(a)(10)(A)(i)(IV), 42 USC 1396a(a)(10)(A)(ii)(IX)), and
…coverage limited to treatment of emergency medical conditions in accordance with 8 USC 1611(b)(1)(A), as authorized by section 1903(v) of the Social Security Act (42 USC 1396b(v)) (“emergency medical conditions Medicaid”).

 

The final Code Sec. 5000A regs also provide that government-sponsored minimum essential coverage includes medical coverage under chapter 55 of Title 10, U.S.C., including coverage under the TRICARE program.

The final Code Sec. 5000A regs reserve on whether certain government-sponsored programs that provide limited benefits are minimum essential coverage, including (i) coverage authorized under section 1115 of the Social Security Act (“Section 1115 demonstration projects”); (ii) coverage for medically needy individuals, see section 1902(a)(10)(C) of the Social Security Act (42 USC 1396a(a)(10)(C)) and 42 CFR 435.300; (iii) coverage under section 1079(a), 1086(c)(1), or 1086(d)(1) of Title 10, U.S.C., for certain individuals who are excluded from TRICARE coverage for health care services from private sector providers and only eligible for space available care in a facility for the uniformed services (“space available care”); and (iv) coverage under sections 1074a and 1074b of Title 10, U.S.C., for individuals not on active duty who are entitled to episodic care for an injury, illness, or disease incurred or aggravated in the line of duty (“line-of-duty care”). (Reg. § 1.5000A-2(b)(2), adopted by T.D. 9632, 08/27/2013)

T.D. 9632, 08/27/2013 indicates that future guidance will provide that the government-sponsored limited-benefit coverage reserved on in the final Code Sec. 5000A regs is not minimum essential coverage. However, it also indicates that, if future rulemaking clarifies that such limited-benefit coverage is not minimum essential coverage, individuals with that coverage for a month in 2014 will not be subject to the Code Sec. 5000A individual shared responsibility payment for that month.

Background on choice of coverage or penalty. Under Code Sec. 5000A, nonexempt individuals have a choice of either maintaining minimum essential coverage for themselves and any nonexempt family members (generally, dependents), or including an additional payment with the Federal income tax return.

The amount of the shared responsibility payment for any tax year is generally the sum of monthly penalty amounts for all months in the tax year in which any nonexempt individual for whom the taxpayer is liable under Code Sec. 5000A(b) did not have minimum essential coverage, computed based on either a flat dollar amount or a percentage of the taxpayer’s income over established thresholds. (Code Sec. 5000A(c))

Background on short term coverage gap exception. There are a number of situations in which an individual is exempt from the penalty imposed by Code Sec. 5000A(a), including “short coverage gaps,” i.e., when the individual isn’t covered by minimum essential coverage for a continuous period (beginning no earlier than Jan. 1, 2014) of less than three months. (Reg. § 1.5000A-3(j)(1))

Concurrent proposed regs. Proposed regs published concurrently with Notice 2014-10 provide that coverage under certain Section 1115 demonstration projects authorized under section 1115(a)(2) of the Social Security Act (42 USC 1315(a)(2)), coverage for medically needy individuals, space available care, and line-of-duty care is not government-sponsored minimum essential coverage (see ¶ 37).

Relief provided by the Notice. Notice 2014-10 observes that individuals enrolled in family planning services Medicaid, tuberculosis-related services Medicaid, pregnancy-related Medicaid, emergency medical conditions Medicaid, certain Section 1115 demonstration projects, coverage for medically needy individuals, space available care, or line-of-duty care may not know, when enrolling for the 2014 coverage year, that such coverage is not minimum essential coverage. Accordingly, to provide relief to individuals in this situation (or to taxpayers who are liable under Code Sec. 5000A for other individuals in this situation), and consistent with T.D. 9632, 08/27/2013, the Code Sec. 5000A shared responsibility payment is not imposed with respect to an individual for months in 2014 when the individual has coverage under family planning services Medicaid, tuberculosis-related services Medicaid, pregnancy-related Medicaid, emergency medical conditions Medicaid, a Section 1115 demonstration project authorized under section 1115(a)(2) of the Social Security Act (42 USC 1315(a)(2)), coverage for medically needy individuals, space available care, or line-of-duty care.

The relief provided by Notice 2014-10 applies only for determining a taxpayer’s Code Sec. 5000A individual shared responsibility payment for not maintaining minimum essential coverage in 2014. Solely for the purpose of determining whether a period without coverage qualifies as a short coverage gap described in Code Sec. 5000A(e)(4), an individual will be treated as having minimum essential coverage for any month in 2014 when that individual is eligible for the transition relief provided by Notice 2014-10.