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Mere eligibility for CHIP “buy-in” program won’t preclude qualification for premium credit

Notice 2015-37, 2015-19 IRB

In a Notice, IRS has provided guidance on eligibility for minimum essential coverage under Code Sec. 36B for individuals who may enroll in coverage under certain Children’s Health Insurance (CHIP) “buy-in” programs. IRS has determined that such an individual will be treated as eligible for minimum essential coverage (and thus ineligible for the premium tax credit) only if the individual actually enrolls in the program.

Background on the premium tax credit. Beginning in 2014, certain individuals are allowed a refundable premium tax credit to help afford health insurance purchased through the Health Insurance Marketplace (also called the Affordable Insurance Exchange, or simply the Exchange). Under Code Sec. 36B and Reg. § 1.36B-2, coverage of an individual (who may be the taxpayer claiming the premium tax credit or a member of the taxpayer’s family) may be subsidized by the premium tax credit only for months the individual is not eligible for “minimum essential coverage,” except coverage in the individual market. Minimum essential coverage is defined in Code Sec. 5000A(f) and includes coverage under certain government-sponsored programs, including CHIP coverage under title XXI of the Social Security Act, and other coverage HHS designates as minimum essential coverage.

In general, an individual is treated as eligible for minimum essential coverage under a government-sponsored program if the individual meets the eligibility criteria for coverage under the program. However, IRS may define eligibility for minimum essential coverage under specific government-sponsored programs in additional published guidance. To this end, IRS has, in regs and other rulings, provided that for purposes of the premium tax credit, an individual is treated as eligible for minimum essential coverage under certain government-sponsored programs and programs HHS has designated as minimum essential coverage only if they are actually enrolled in the program. (Reg. § 1.36B-2(c)(2)(i); Notice 2014-71, 2014-49 IRB 912; Notice 2013-41, 2013-29 IRB 60)

Background on CHIP “buy-in” programs. In certain states, certain individuals in households with income exceeding eligibility levels for CHIP may enroll in coverage resembling coverage under the state’s CHIP program. These programs, commonly called CHIP “buy-in” programs, generally require the payment of premiums with little or no government subsidy. The programs are not authorized or funded under title XXI of the Social Security Act and therefore are not government-sponsored minimum essential coverage under Code Sec. 5000A(f)(1)(A).

Effect on eligibility for the premium tax credit. IRS determined that an individual who may enroll in a CHIP buy-in program that HHS has designated as minimum essential coverage (upon the program’s application for same) is treated as eligible for minimum essential coverage under the program only for the period the individual is actually enrolled. In other words, simply having the ability to purchase coverage from such a program won’t render a taxpayer ineligible for subsidized coverage (i.e., for which a premium tax credit is provided).

IRS noted that a segment of the population who otherwise would be eligible for subsidized qualified health plan coverage can enroll in coverage through a CHIP buy-in program, but only at a high cost. To deny these individuals eligibility for the premium tax credit on that basis would be inconsistent with the purpose of the credit—to make health insurance affordable.

References: For the premium tax credit, see FTC 2d/FIN ¶  A-4241; United States Tax Reporter ¶  36B4; TaxDesk ¶  138,700; TG ¶  1381.

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