The Individual Mandate Under ACA

Posted in: Employee Benefits

Effective January 1, 2014, the Affordable Care Act requires that most individuals obtain and maintain minimum essential health coverage or pay a penalty. The Internal Revenue Services and the Department of Health & Human Services have issued a proposed regulation on the individual mandate.

Individual Mandate Basics
Most individuals will be required to maintain minimum essential coverage or include an additional payment with their federal income tax return. This includes children, senior citizens and resident aliens. The payment for 2014 will be the greater of $95 per adult (1/2 this amount for children under age 18 and a family cap of 300%) or 1% of household income above the filing threshold. These amounts increase in 2015 ($325 or 2%) and 2016 ($695 or 2.5%) and then are subject to cost-of-living adjustments thereafter. The penalty is capped at the average national premium for a Bronze plan.

Minimum essential coverage will include the following:

  • Employer-sponsored coverage (including COBRA and retiree coverage);
  • Coverage purchased in the individual market;
  • Medicare, Medicaid, Tricare and CHIP; and
  • Certain types of veterans health coverage

It will not include dental or vision insurance, disability insurance or coverage for a specific disease or condition.

Exemptions from the Individual Mandate
The mandate will not apply in the following circumstances:

  • Religious conscience objection
  • Members of health care sharing ministry
  • Members of federally recognized Indian tribes
  • No federal filing requirement (because household income is below the minimum threshold)
  • Short coverage gap
  • Hardship
  • Unaffordable coverage options
  • Incarceration
  • Not lawfully present

Exemptions for many of the categories listed above will be granted by a Health Insurance Marketplace (Exchange) upon application or as part of filing a federal tax return. Individuals without a federal filing requirement are automatically exempt.

Short Coverage Gap Exemption
An individual will qualify for the short coverage gap exemption if the continuous period without minimum essential coverage is less than three full calendar months and is the first short coverage gap in the individual’s tax year. If an individual has coverage for one day in a calendar month, the month is not included in the determination of the length of the gap. If the total coverage gap is three or more months, none of the months included in the continuous period may be considered a short coverage gap. Special rules apply when the coverage gap straddles two tax years.

Unaffordability Exemption
An individual will be exempt from the individual mandate penalty if the individual does not have access to affordable minimum essential coverage. Coverage will be deemed unaffordable if the required contribution is more than 8% of household income. For coverage int he individual market, this determination will be based on the premium of the lowest cost bronze plan, less any allowable federal subsidy. For employer-sponsored coverage, this determination will be made based on the employee’s required contribution for lowest cost self-only coverage.

The exemption for unaffordable coverage will apply to family members when an individual has access to affordable employer-sponsored coverage but employer-sponsored coverage for the family is not affordable. For example, if an employee is asked to pay less than 8% of household income for self-only coverage, but more than 8% of income for family coverage, the remaining family members may be exempt from the individual mandate. However, unaffordable employer-sponsored coverage for family members will not result in eligibility for federal subsidies to purchase individual market coverage for those family members.

Paying the Individual Mandate Penalty
Individuals will not have to account for coverage or exemptions or pay the individual mandate penalty until after the close of the 2014 calendar year, when federal income tax returns are due. Insurers will be required to provide all covered individuals with information that will be used by the taxpayer to demonstrate coverage. The law prohibits the IRS from using liens or levies to collect payment due as a result of the individual mandate penalty.

 

 

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