On August 27, 2013, the Internal Revenue Service (“IRS”) and the U.S. Department of Treasury (the “Treasury Department”) released a final rule, Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage, (the “Final Rule”), which was published in the Federal Register today, to implement the individual shared responsibility provision provided for under the Affordable Care Act (“ACA”). Starting in 2014, the individual shared responsibility provision requires each individual to have basic health insurance coverage (known as minimum essential coverage), qualify for an exemption, or make a shared responsibility payment (penalty) when filing a federal income tax return.
Minimum essential coverage includes coverage provided under (i) a government-sponsored program; (ii) an eligible employer-sponsored plan; (iii) a plan in the individual market; (iv) a grandfathered health plan; (v) or other coverage that qualifies as minimum essential coverage. Minimum essential coverage does not include certain specialized coverage, such as coverage only for vision care or dental care, workers’ compensation, or coverage only for a specific disease or condition.
According to the Final Rule, an individual is deemed to have minimum essential coverage for an entire month so long as the individual has coverage for one day of that month. The Treasury Department provided the following example in its fact sheet to illustrate this principle: “an individual who starts a new job on March 27 and is enrolled in employer-sponsored coverage on that day is treated as having coverage for the month of March.”
Additionally, the Final Rule provided clarification in regard to the coverage gap exemption provided for under the ACA. According to the ACA, an individual is exempted for gaps in coverage less than three months. However, the Final Rule acknowledged that many individuals file their tax returns as early as January and, at that time, individuals may not know if a coverage gap will last more than three months. For instance, if a coverage gap begins in November, an individual may not be able to predict whether the coverage gap will end within three months, and therefore fit within the exemption. Therefore, the Final Rule provides that if the part of a gap in the first tax year is less than three months, and the individual has no prior short coverage gap within the first year, then no shared responsibility payment is due for that coverage gap period, regardless of the eventual length of the gap. As a result, a coverage gap that begins in November, without any prior coverage gap earlier in the year, will not trigger a shared responsibility payment, even if the gap extends beyond three months.
The Final Rule also provides that married individuals who file a joint tax return for a taxable year are jointly liable for any shared responsibility payments. Additionally, an individual responsible for a dependent, as defined in Section 152 of the Internal Revenue Code, who does not have minimum essential coverage and is not otherwise exempt, is liable for the shared responsibility payment attributable to the dependent’s lack of coverage.The Final Rule also sets forth special rules for dependents who are adopted or placed in foster care during the taxable year. According to the Final Rule, for purposes of the individual shared responsibility payment, if a taxpayer adopts a nonexempt dependent (or accepts a nonexempt dependent who is an eligible foster child) during the taxable year, the taxpayer is liable for the nonexempt dependent for the full months that follow the month in which the adoption or acceptance occurs. Similarly, if a taxpayer places a nonexempt dependent for adoption or foster care, the taxpayer is only liable for the nonexempt dependent for the full months that precede the month in which the adoption or foster care placement occurs.
The Final Rule comes shortly after the Centers for Medicare & Medicaid Services (“CMS”) of the United States Department of Health and Human Services (“HHS”) released final regulations earlier this summer regarding minimum essential coverage and the exemptions from the individual shared responsibility provision. These regulations were both released amidst political calls to delay the implementation of the individual shared responsibility payment provisions, consistent with the Obama Administration’s decision to delay the implementation employer shared responsibility provisions, which will not take effect until January 2015.