The IRS issued proposed regulations for determining whether an eligible employer-sponsored health plan provides minimum value for purposes of the Sec. 36B health insurance premium tax credit (REG-125398-12). Individuals do not receive the credit if they are eligible for affordable coverage under an eligible employer-sponsored plan that provides minimum value. Employers whose employees receive the health insurance premium tax credit may be liable for the Sec. 4980H “assessable payment.”
When the final regulations for Sec. 36B were issued in May 2012, they did not cover the definition of minimum value; the IRS requested comments on that issue (T.D. 9590, Notice 2012-31). In drafting the proposed rules, the IRS considered the comments it received.
Prop. Regs. Sec. 1.36B-6(a) states that a plan provides minimum value only if the plan’s share of the total allowed costs of benefits provided to an employee is at least 60%. Minimum value may be calculated using one of four methods: (1) the minimum value calculator provided by the IRS and the Department of Health and Human Services (HHS) (calculated with adjustments provided in the regulations); (2) one of the safe harbors established by the IRS and HHS (generally, plans that provide certain benefits within specified co-pay, deductible, and cost-sharing limits); (3) actuarial certification for nonstandard plans; or (4) for plans in the small group market (employers with a maximum of 100 employees or, in years before 2016, in states that elect, 50 employees), conforming with a level of coverage defined in 45 C.F.R. Section 156.140(b) (bronze, silver, gold, or platinum).
The proposed regulations also explain how wellness incentives (where a premium or other cost is reduced to encourage certain behaviors) are included in calculating minimum value. If the wellness incentives are tobacco-related, they are included in determining affordability (i.e., they would reduce the premium); otherwise, they are not included. The rules also explain how payments into health savings accounts and health reimbursement arrangements are included in calculating affordability.
The proposed regulations also:
- Define the term “rating area” used to determine costs of plans in the area in which the taxpayer lives;
- Define how retiree coverage is included as minimum essential coverage;
- Define coverage months for newborns and new adoptees;
- Explain how to calculate the adjusted monthly premium for family members not enrolled a full month (e.g., for a newborn child);
- Explain how to calculate the premium assistance amount when coverage is terminated before the last day of a month;
- Explain that premiums for family members residing in different states who enroll in different health plans can be added together; and
- Require taxpayers who receive advance payments of premium tax credits to file an income tax return to reconcile the payments by the due date for the return (including extensions) for the year they received the advance payments.
The regulations are proposed to apply to tax years ending after Dec. 31, 2013 (the first year the credit will be in effect).