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Medicaid or CHIP eligibility due to pregnancy doesn’t end premium credit eligibility

Notice 2014-71, 2013-48 IRB

IRS has provided a special rule so that an individual enrolled in a health plan qualifying her for a premium tax credit, who becomes eligible for Medicaid or Children’s Health Insurance Program (CHIP) coverage as a result of getting pregnant, won’t lose eligibility for the credit as a result of the pregnancy if she does not enroll in the Medicaid or CHIP coverage.

Background.Beginning in 2014, eligible individuals covered under a qualified health plan through a Health Insurance Marketplace, also called an Exchange, are allowed a premium tax credit under Code Sec. 36B.Under Code Sec. 36B and Reg. § 1.36B-2, in general, 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 enrolled in a qualified health plan through an Exchange and is not eligible for other 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.(Reg. § 1.36B-2(c)(2)(i))

Minimum essential coverage includes coverage under the Medicaid program and CHIP under the Social Security Act.(Code Sec. 5000A(f)(1)(A)) An individual who becomes pregnant may become eligible for Medicaid or CHIP coverage solely because of that condition. Because Medicaid coverage based on pregnancy 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) may provide limited benefits, Reg. § 1.5000A-2(b)(1)(ii)(C) provides that it is not minimum essential coverage within the meaning of Code Sec. 5000A(f)(1)(A).Under Code Sec. 5000A(f)(1)(E), the Secretary of Health and Human Services (HHS), in coordination with the Secretary of the Treasury, may designate health benefits coverage not specified in Code Sec. 5000A(f) as minimum essential coverage.HHS has designated pregnancy-based Medicaid coverage as minimum essential coverage in states that provide full Medicaid benefits under that program.

Under section 2112 of the Social Security Act, states may expand coverage under their CHIP programs to targeted low-income pregnant women.Pregnancy-related CHIP coverage provides full CHIP benefits and is minimum essential coverage.

Medicaid or CHIP coverage as a result of pregnancy applies only for the duration of the pregnancy plus a period of up to 90 days afterwards.

Problem addressed by the new notice.Without a special rule, an individual enrolled in a qualified health plan before the pregnancy would lose eligibility for the premium tax credit subsidy because of the Medicaid or CHIP coverage triggered by the pregnancy.If, after the birth, the individual is not eligible for Medicaid or CHIP coverage on another basis, she would be required to re-enroll in a qualified health plan to maintain coverage.(The loss of Medicaid or CHIP coverage generally makes an individual eligible for a special enrollment period for a qualified health plan.)A special rule in the notice provides continuity of care to these individuals.

Special rule to address the problem.An individual enrolled in a qualified health plan who becomes eligible for Medicaid coverage for pregnancy-related services that is minimum essential coverage, or for CHIP coverage based on pregnancy, is treated as eligible for minimum essential coverage under the Medicaid or CHIP coverage for purposes of the premium tax credit only if the individual enrolls in the coverage.

RIA observation:Thus, the individual can continue with her original coverage without losing the premium credit as long as she does not enroll in the aforementioned Medicaid or CHIP coverage.

Effective date.Notice 2014-41 is effective Nov. 7, 2014.

References:For the requirement that applicable individuals maintain minimum essential coverage after 2013, see FTC 2d/FIN ¶  A-6401  et seq.; United States Tax Reporter ¶  50,00A4  et seq.;TaxDesk ¶  576,151  et seq.; TG ¶  1811  et seq.

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