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Affordable Care Act

IRS announces 2019 ACA premium credit indexing adjustments

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

In a Revenue Procedure, IRS has provided indexing adjustments that are to be used in applying various Affordable Care Act (ACA, or Obamacare) provisions under Code Sec. 36B (the premium tax credit) for 2019. Included in the adjustments are: the 2019 Applicable Percentage Table in Code Sec. 36B(b)(3)(A)(i), which is used to calculate an individual’s premium tax credit; and updates to the required contribution percentage in Code Sec. 36B(c)(2)(C)(i)(II), which is used to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage under Code Sec. 36B for plan years beginning after 2016.

Background. Under Code Sec. 36B(a), certain taxpayers are allowed a refundable premium tax credit to help afford health insurance purchased through an Exchange. A taxpayer’s premium tax credit with respect to any coverage month is the lesser of: (a) the premiums for the plan or plans in which the taxpayer or one or more members of the taxpayer’s family enroll and (b) the excess of the premiums for the applicable second lowest cost silver plan covering the taxpayer’s family over the taxpayer’s “contribution amount.” (Code Sec. 36B(b)(2))

A taxpayer’s contribution amount is the product of the taxpayer’s household income and an “applicable percentage” that increases as the taxpayer’s household income increases, determined under rules specified in Code Sec. 36B(b)(3)(A)(i).Code Sec. 36B(b)(3)(A)(ii) provides that, for tax years beginning in 2015 and thereafter, the percentages in the table under Code Sec. 36B(b)(3)(A)(i) must be adjusted to reflect the excess of the rate of premium growth for the preceding calendar year over the rate of income growth for the preceding calendar year. The applicable percentage within an income category increases on a sliding scale in a linear manner from the initial to final percentages (see below).

Code Sec. 36B(c)(2)(B) provides that a coverage month does not include any month with respect to an individual if for such month the individual is eligible for minimum essential coverage other than eligibility for coverage in the individual market described in Code Sec. 5000A(f)(1)(C). Under Code Sec. 36B(c)(2)(C), an individual is not treated as eligible for employer-sponsored minimum essential coverage if the required contribution with respect to the plan exceeds 9.5% of the taxpayer’s household income (Code Sec. 36B required contribution percentage). For plan years beginning in 2015 and thereafter, the 9.5% is updated in the same manner that the applicable percentage is adjusted under Code Sec. 36B(b)(3)(A)(ii).

Code Sec. 36B(b)(3)(A)(ii)(II) provides that, except as provided in Code Sec. 36B(b)(3)(A)(ii)(III), an additional adjustment must be made for years after 2018 to reflect the rates of premium growth relative to the growth in the consumer price index. Code Sec. 36B(b)(3)(A)(ii)(III), the “failsafe” provision, provides that the post-2018 inflation adjustment will apply for a calendar year only if the aggregate amount of Code Sec. 36B credits and cost-sharing reductions under Sec. 1402 of the Patient Protection and Affordable Care Act (PL 111-148, 3/23/2010) for the preceding calendar year exceeds an amount equal to 0.504% of the Gross domestic product for the preceding calendar year.

2019 adjusted items. For tax years beginning in 2019, the Applicable Percentage Table for purposes of Code Sec. 36B(b)(3)(A)(i) (and the accompanying reg, Reg. § 1.36B-3(g)) is:

Where household income as a percentage of the Federal poverty line is:

  • Less than 133%, then the initial percentage is 2.08% and the final percentage is 2.08%;
  • At least 133% but less than 150%, 3.11% and 4.15%;
  • At least 150% but less than 200%, 4.15% and 6.54%;
  • At least 200% but less than 250%, 6.54% and 8.36%;
  • At least 250% but less than 300%, 8.36% and 9.86%; and
  • At least 300% but not more than 400%, 9.86% and 9.86%.

For plan years beginning in 2019, the Code Sec. 36B required contribution percentage for purposes of Code Sec. 36B(c)(2)(C)(i)(II) and Reg. § 1.36B-2(c)(3)(v)(C) is 9.86% (up from 9.56% for 2018).

And, IRS has determined that the failsafe exception described in Code Sec. 36B(b)(3)(A)(ii)(III) applies for 2019 and thus no additional adjustment under Code Sec. 36B(b)(3)(A)(ii)(II) is required for 2019.

Rev Proc 2018-34 uses the methodology in Rev Proc 2014-37, 2014-33 IRB 363, to index the Applicable Percentage Table and the Code Sec. 36B required contribution percentage for 2019.

Observation: In prior years, when IRS announced ACA premium credit indexing adjustments for the following calendar year, it also announced the required contribution percentage under Code Sec. 5000A, the Code provision that provides for the “individual mandate.” However, the “individual mandate” has been repealed by the Tax Cuts and Jobs Act (P.L. 115-97), effective for months beginning after Dec. 31, 2018, so there is no required contribution percentage under Code Sec. 5000A for 2019.

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

Rev Proc 2018-34, 2018-23 IRB

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