Following up on guidance issued last month, the Department of Health and Human Services has proposed two new sets of regulations and the Department of the Treasury has proposed one on the state-based health insurance marketplaces known as Affordable Insurance Exchanges. (To view our alert on the earlier guidance, click here.)
The Patient Protection and Affordable Care Act (the 2010 health care reform legislation) established these Exchanges with the intent of expanding access to health insurance coverage for uninsured and underinsured individuals while providing more cost-effective health coverage for employees of small businesses. Beginning January 1, 2014, individuals and small businesses will be able to purchase private heath insurance through an Exchange.
State Exchange Eligibility and Employer Standards
The first rule proposed by HHS addresses eligibility determinations for both Exchange participation and insurance affordability programs, along with standards for employer participation in the Small Business Health Options Program (SHOP).
Specifically, the proposed rule establishes a coordinated system through which an individual may apply for and receive a determination of eligibility for enrollment in a qualified health plan through an Exchange while also being advised of eligibility for certain programs aimed at making health insurance affordable to individuals based on income.
Exchanges will be responsible for determining an individual’s eligibility for all available plans and programs based on a single application process. The Exchange will determine if an individual may participate in a qualified health plan through the Exchange; the extent to which financial assistance will be available to the individual for such coverage, including cost-sharing reductions or advance payment of the premium tax credit; and whether the individual qualifies for a government-based assistance program, such as Medicaid or the Children’s Health Insurance Program (CHIP).
The proposed rule provides detailed guidance on the responsibility of the Exchange to verify applicant information and coordinate with government-based programs to provide a streamlined, consumer-oriented process for the applicant.
The proposed rule also provides additional guidance on SHOP, which generally aims to make appropriate, affordable health insurance options available to employers with no more than 100 employees. The guidance requires participating employers to disseminate information to employees about how to enroll in a qualified health plan through SHOP. It is expected that such information will include time frames for enrollment, instructions for accessing the SHOP Web site (to compare qualified health plans), and the SHOP toll-free consumer assistance telephone number.
The guidance addresses various aspects of an employer’s participation in SHOP, including guidance on an employer’s selection of health insurance plans, the timing of participation and employee enrollment, the opportunities that an employer may make available to employees to elect health insurance, and the information that an employer must provide SHOP regarding the eligibility of employees. There are no statutory domicile or residency requirements for participation in SHOP. The preamble to the proposed guidance provides flexibility to employers and suggests that employers use the SHOP servicing the employer’s principal business address or the SHOP serving the employee’s primary worksite.
Once qualified to participate in SHOP, an employer may continue to participate even if the number of its employees increases above 100, as long as the employer otherwise continues to qualify.
Medicaid Program and Eligibility Changes
The second rule proposed by HHS supplements the first rule by providing guidance on the coordination between government-based assistance programs (such as Medicaid and CHIP) and Exchanges with respect to eligibility and enrollment. The proposed rule also sets out increased federal medical assistance percentage rates and related conditions and requirements for assistance.
The proposed rule amends federal policies and guidelines to allow Exchanges to determine eligibility for government-based assistance programs and to permit the use of a single, streamlined application process for eligibility determinations and enrollment across available assistance programs. It also revises income eligibility standards for program participation.
Premium Tax Credit Guidance
The Treasury Department issued a proposed rule providing guidance on the premium tax credit created by PPACA to help individuals and families pay for qualified health insurance coverage purchased through an Exchange. The credit is designed to reduce a taxpayer’s out-of-pocket premium cost for qualified health plan coverage.
The Exchange makes an advance determination of eligibility for the tax credit and payments are made monthly to the qualified health plan in which the individual enrolls. A taxpayer is responsible for reconciling the actual premium tax credit computed on the taxpayer’s tax return with the actual amount of advance payments. If the credit is greater than the amount received, the taxpayer will be entitled to an income tax refund. If actual payments exceed the credit amount, the taxpayer’s tax liability will be increased.
Eligibility for the premium tax credit is based on household income and dependency status. An individual is not eligible if any of the following holds true:
- The individual is eligible for certain other minimum essential coverage, such as government coverage, including Medicare, Medicaid, and CHIP, or certain employer-sponsored plans.
- The employee’s share of the premium is affordable and the coverage meets prescribed minimum standards.
- The employer’s plan does not provide affordable minimum essential coverage, but the individual enrolls in the plan anyway.
To be eligible for the credit, an individual must have household income that is at least 100 percent, but not more than 400 percent, of the federal poverty level (individuals with lower income levels are eligible for Medicaid and therefore not eligible for the credit).
The regulation offers additional guidance on certain situations affecting whether an individual is eligible for affordable minimum essential coverage and, therefore, ineligible for the premium tax credit. In particular, the guidance provides that an individual’s mere eligibility for continuation coverage will not be considered eligibility for minimum essential coverage unless the individual actually enrolls in the continuation coverage.
The guidance also provides a safe harbor for an individual who declines employer-sponsored coverage when an Exchange determines that the coverage is unaffordable. Under this safe harbor, the coverage will still be treated as unaffordable for the entire plan year for the purpose of allowing the individual to continue to qualify for the tax credit if the coverage is later determined to be affordable based on the individual’s household income for the year (so long as the individual is otherwise eligible for the credit).
Although not addressed directly in the new proposed regulations themselves, the preamble suggests that future guidance will provide certain relief to large employers (with at least 50 employees) that might otherwise be required to pay penalties for not providing affordable coverage. A large employer that offers health coverage to full-time employees and dependents is subject to a penalty if one or more full-time employees are certified to receive a premium tax credit or cost-sharing reduction because the employer-sponsored coverage either fails to provide minimum value or is determined to be unaffordable to the employee.
As currently stated in the proposed regulations, coverage will be considered affordable if an employee is not required to contribute more than 9.5 percent of his or her “household income” for the taxable year toward the cost of self-only coverage. Recognizing that employers will often have difficulty determining an employee’s household income, the preamble states that future regulations are expected to provide a safe harbor based on 9.5 percent of an employee’s W-2 wages.