The IRS has finalized a rule to amend the definition of a “coverage month” for the purposes of calculating the Premium Tax Credit (PTC) and plans to revise a related form submitted by health care exchanges. (TD 10019, 12/17/2024)
Background.
The PTC under Code Sec. 36B, as established by the Affordable Care Act (ACA, P.L. 111-148), is an income-restricted refundable tax credit designed to assist eligible individuals pay for health insurance premiums purchased through the federal Health Insurance Marketplace.
To qualify, a taxpayer or a family member must enroll in a qualified health plan (QHP) for one or more coverage months. The PTC claimant cannot be claimed as a dependent by another person, nor can they file separate returns from their spouse, if married.
Further, an enrolled individual during a coverage month must not have been eligible for affordable coverage through an eligible employer-sponsored plan that provides minimum value or enrolled in government health coverage like Medicare, Medicaid, or TRICARE.
A month is a coverage month if the following conditions are met: 1) the individual is enrolled in a QHP as of the first day of the month; 2) the individual’s share of premium payments are made, such as via Advance Premium Tax Credit (APTC) payments; and 3) the individual is not eligible for minimum essential coverage for the full calendar month.
Amended definition.
On September 17, 2024, the IRS issued proposed regs to modify what a coverage month is in certain instances when the full premium balance remains unpaid by the unextended due date of the taxpayer’s return for the applicable coverage year, but enough payments were made (including by using APTCs) to avoid coverage termination.
In coordination with the Department of Health and Human Services, the IRS issued the regs to promote reporting consistency among exchanges regarding the reporting of enrollment premiums for non-payment months.
Under the proposed regs, the modified coverage month definition applies to the first month of a grace period under 45 CFR 156.270(d). The definition also applies to months in which an individual meets the 45 CFR 155.400(g) premium payment threshold. Finally, a coverage month includes months when state insurance departments declare an emergency and prohibit QHP providers from terminating coverage.
The IRS received nine comments and cancelled a rulemaking hearing scheduled for December 13 due to a lack of requests to testify.
On December 17, the IRS issued final regs adopting the proposed rule without revision.
Applicability date.
The regs take effect January 1, 2025.
Several commenters expressed concern that state exchanges would need more time to adjust their platforms to accommodate the three scenarios under the regs wherein non-payment months are considered coverage months.
One commenter suggested pushing the applicability date back by nine to 12 months. Another commenter said the final regs should include “detailed scenarios addressing the applicability dates.” However, the IRS was not swayed and did not change the date.
“Exchanges should do the best they can to timely implement the coverage month rule in these final regulations,” the IRS said. “The Treasury Department and the IRS will continue to consult with State Exchanges to assist with their implementation of the coverage month rule under these final regulations.”
Form 1095-A.
The IRS intends to revise Form 1095-A, Health Insurance Marketplace Statement, to reflect the final regs. A commenter requested guidance with examples that demonstrate how health insurance exchanges should report multiple grace periods in a calendar year, mid-month changes, and partial payments.
Instead of changing the regs, the IRS said such clarifications are better suited for the revised Form 1095-A.
“The instructions will continue to provide that Exchanges must report $0 in column A for any other months for which the full enrollment premium for the month is not paid, and that the amount reported in column A should be reduced by any enrollment premium refunds or credits,” the IRS explained.
In column B of Form 1095-A, exchanges will be instructed to report the second lowest cost silver plan, or SLCSP, premium that would apply if the enrollment premium had been paid in full.
As the IRS works to update Form 1095-A, the agency offered a reminder that the form is not an information return within the meaning of Code Sec. 6721 because Code Sec. 36B(f)(3) requires exchanges to report QHP enrollment information. This means that there is no penalty imposed for incomplete or incorrect Forms 1095-A.
For more on the Premium Tax Credit and eligibility requirements, see Checkpoint’s Federal Tax Coordinator ¶ A-4241.
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