IRS issues guidance on minimum essential health coverage, shared-responsibility penalty

In anticipation of the full implementation of health care reform next year, on Wednesday the IRS issued two notices. The first notice defines minimum essential coverage under certain government health plans and other coverage designated as minimum essential coverage for purposes of the Sec. 36B premium tax credit (Notice 2013-41). The second notice provides relief from the shared-responsibility penalty under Sec. 5000A for individuals who are eligible for coverage in plans that are not on a calendar year (Notice 2013-42).

Notice 2013-41 first announces newly finalized regulations published by the secretary of Health and Human Services (HHS) on June 26, which state that high-risk pools and self-funded health coverage that universities offer to students qualify as minimum essential coverage for a one-year transitional period in 2014. For plan years beginning on or after Jan. 1, 2015, sponsors of these plans must apply to HHS to have their coverage recognized as minimum essential coverage.

The notice then explains that individuals who qualify for the Children’s Health Insurance Program (CHIP) or Medicaid, both of which require participants to pay premiums, are considered not eligible for health coverage subsidized by the premium tax credit during the “lockout” period during which they are not eligible to re-enroll in either program after they have failed to pay their premiums. This treatment is consistent with the treatment of an employee who was locked out of his or her plan for failing to pay health insurance premiums, who also would not be eligible for the tax credit. However, individuals who are not eligible for CHIP because they must wait out an eligibility period are treated as not eligible for minimum essential coverage and therefore qualify for the tax credit.

The last two eligibility requirements addressed in the notice are concerned with coverage under certain government programs. First, for purposes of the premium tax credit, an individual is eligible for minimum essential coverage under Medicaid or Medicare only upon a favorable determination of eligibility for coverage by the responsible agency based on a finding of disability or blindness for Medicaid and solely on a finding of disability or illness for Medicare. 

Second, individuals are considered to have minimum essential coverage under the following health care plans only if they are actually enrolled in the coverage:

• Medicare Part A coverage that requires premium payments;
• State high-risk pools;
• Student health plans; and
• TRICARE military coverage.

For individuals whose employers’ health insurance plans are not on a calendar year, Notice 2013-42 provides transitional relief from the shared-responsibility penalty under Sec. 5000A if the employee chooses not to enroll in the employers’ plan for the 2013–2014 plan year. Generally, employees who choose not to enroll in coverage for the 2013–2014 plan year will not be liable for the penalty through the month the 2013–2014 plan year ends under this rule. 

—Sally P. Schreiber (sschreiber@aicpa.org) is a JofA senior editor.