IRS Proposes Individual Mandate Regulations

The Internal Revenue Service (IRS) issued proposed regulations addressing the individual shared responsibility payment provisions of the Affordable Care Act. Beginning January 1, 2014, individuals are required to maintain minimum essential health coverage or pay a penalty known as a shared responsibility payment unless the individual qualifies for an exemption.

The proposed regulations allow an exemption for 2014 to individuals enrolled in certain coverage that would not otherwise meet the Minimum Essential Coverage definition. This includes coverage for the medically needy, benefits provided as part of an expansion population under Section 1115(a)(2) of the Social Security Act and limited benefit coverage under TRICARE. The proposed regulations also clarify that coverage which consists only of excepted benefits does not qualify as Minimum Essential Coverage. Excepted benefits such as most health Flexible Spending Accounts, stand-alone dental and vision plans and certain fixed indemnity plans do not provide comprehensive health care benefits.

Individuals who cannot afford coverage are exempt from the shared responsibility payment if the individual is required to pay an annual amount for coverage which is greater than 8% of their household income. The proposed regulations provide that any newly available amounts contributed to a Health Reimbursement Account (HRA) which is integrated with the employer-sponsored health plan are counted towards the individual’s required contribution in determining the affordability of the coverage if the amounts may only be used for premiums or if the individual may choose to use those amounts for either premiums or cost sharing requirements. Any contributions made to an HRA which may only be used for cost sharing will not be included in determining affordability since those amounts cannot reduce the individual’s out of pocket cost of obtaining minimum essential coverage.

In the case of contributions to a Section 125 Cafeteria Plan where an individual elects to make salary reduction contributions and apply those amounts towards the premium required for coverage, those contributions will increase the amount of the individual’s household income for purposes of determining affordability. However, the proposed regulations are seeking comments on how to treat employer contributions to a Section 125 Cafeteria Plan which cannot be received as a taxable benefit by the individual.

Also, for individuals who are eligible for coverage which provides wellness incentives, only those incentives which are related to tobacco use may be considered in determining an individual’s required contribution for coverage. Any other wellness incentive should be disregarded in determining affordability.