With the goal of making the new healthcare system work for everyone, the PPACA as amended by the Health Care and Education Reconciliation Act created a requirement called Share Responsibility. This is applicable to individuals, insurance companies, medical device companies, medical providers, pharmaceutical companies, employers and the government. On January 30, 2013, the HHS and IRS released a Final Rule and two Proposed Rules related to the individual part of Shared Responsibility.
Shared Responsibility for Individuals
This requirement was put into effect with the perspective of making health insurance feasible for consumers and the payers in the long run. By making a basic type of coverage necessary, health care benefits of individuals and subscriber volumes for insurers are addressed simultaneously. Individuals should maintain a Minimum Essential Coverage (MEC) or be ready to be penalized where the penalties will be levied as Shared Responsibility Payment.
Individuals who can afford to buy health insurance but choose not to face a penalty of nearly 1% of their income in 2014. This penalty doubles in 2015 and rises to 2.5% of their income in 2016. The penalty amount has a cap, i.e. it shouldn’t exceed the national average for the premium charged as a part of the Bronze Plan offered via State Exchanges. The penalty calculations are a bit more complex for families with children.
Shared Responsibility for Individuals & January 2013 HHS Proposed Rule
The recent HHS Proposed Rule clarifies the processes through which a health insurance exchange can grant exemptions from Shared Responsibility Payment and make eligibility determinations for the same. This Rule identifies a few types of coverages that can be interpreted as MEC. This Rule has also issued standards according to which different, health benefits plans can be granted the status of MEC. For instance, some of the Medicare Advantage Plans have been proposed to be designated as MEC. If sponsors of health plans feel that they meet the criteria for getting their coverage recognized as MEC, they can apply to the HHS.
Shared Responsibility for Individuals and the Latest IRS Final Rule
The IRS had previously issued regulations in May 2012 addressing the eligibility for getting premium tax credits when buying health insurance from the public exchanges. Such credits can be availed by low-income individuals only, including employees. The Final Rule, issued on January 30, 2013, complements this regulation. The Rule clarifies that for employees, the affordability for buying coverage from health insurance exchanges will be based upon the amount of coverage they require for themselves only. Therefore, an employee enrolled within an employer-sponsored group health plan, buying insurance from the exchanges can avail tax credits only if his source of income isn’t sufficient to pay for MEC coverage. This is irrespective of whether the proposed plan can provide coverage to his family or dependents.
Shared Responsibility for Individuals & January 2013 IRS Proposed Rule
As explained, an individual who doesn’t ensure MEC for himself or his dependents is subject to a Shared Responsibility Payment. These payments are calculated on a monthly basis. However, under some circumstances, exemptions from these payments can be sought. The latest Proposed Rule from the IRS provides more clarity on this kind of exemption. The exemption is applicable in very limited situations. For instance, if it can be determined that the individual didn’t have access to affordable MEC, the exemption can be provided. However, MEC is applicable differently across individuals covered as employees under employer-sponsored group health plans and Related Individuals (covered under deductions of Internal Revenue Code Section 151).
These updates have made it easier for health insurance issuers to understand the MEC requirements. This is a significant development since plans retailed on the State Exchanges will benefit immensely from clearer eligibility determinations. Insurers will gain more clarity as to what kind of coverage doesn’t constitute MEC and they can reconfigure their health insurance products accordingly.