On Aug. 12, 2011, the U.S. departments of Health and Human Services (HHS) and Treasury issued three proposed rules under the Patient Protection and Affordable Care Act (PPACA) regarding the use of state-run insurance exchanges to purchase private health insurance, beginning in 2014, and subsidies to help qualifying small businesses, individuals and families purchase coverage. The proposed rules cover:
• Exchange eligibility and employer standards. The first HHS-proposed rule affects tax credits for small employers participating in the federal Small Business Health Options Program (SHOP). Small employers that purchase employer-sponsored health coverage through SHOP could qualify to receive a small business tax credit for up to 50 percent of the employer’s premium contributions toward employee coverage. (This proposed rule was published in the Aug. 17, 2011, Federal Register, here.)
• Health insurance premium tax credit. Under the second proposed rule, qualifying individuals and families would receive premium tax credits to help defray insurance costs. To be eligible for the premium tax credit, a taxpayer must have household income between 100 percent and 400 percent of the federal poverty line amount for his or her family size ($22,350 to $89,400 for a family of four in 2011). In addition, the taxpayer must not be claimed as a dependent by another taxpayer and, if married, must file a joint return. (This Treasury release has more on how the premium tax credit works. The proposed rule was published in the Aug. 17, 2011, Federal Register, here.)
For Employers: A Safe Harbor for Affordable Coverage
Under this proposed rule, a safe harbor would be available in which an employer that offers full-time employees and their dependents the opportunity to enroll in eligible employer-sponsored coverage would not be subject to a penalty with respect to an employee who receives a premium tax credit for a taxable year. The safe harbor applies if the employee portion of the self-only premium for the employer’s lowest cost plan that provides minimum value does not exceed 9.5 percent of the employee’s current W-2 wages from the employer.
Prior to this proposed rule, there were concerns that penalty avoidance under the PPACA would be based on the employee premium not exceeding 9.5 percent of the employee's household income. Giving employers the ability to base their affordability calculations on their employees’ wages (which employers know) instead of employees’ household income (which employers generally do not know) is intended to provide a more workable and predictable method of ensuring affordable employer-sponsored coverage.
Notice 2011-73, posted by the IRS on on Sept. 13, 2011, solicits public comments on a proposed safe harbor. Comments are due by Dec. 13, 2011, and may be submitted by e-mail to Notice.Comments@irscounsel.treas.gov (include “Notice 2011-73” in the subject line).
• Medicaid eligibility. The third proposed rule would coordinate the exchanges with Medicaid and Children’s Health Insurance Program (CHIP) eligibility. Most adults under age 65 with incomes up to 133 percent of the federal poverty line—$14,500 for an individual and $29,700 for a family of four in 2011—would be eligible for Medicaid. Children would be eligible for either Medicaid or CHIP at higher income levels based on the eligibility standards in their state.
HHS and Treasury announced that they will conduct an outreach campaign and ask for public comment on the three proposed rules from employers, consumers, state leaders and health care providers and insurers. The IRS invites written comments on the proposed regulations, which must be received by Oct. 31, 2011. Comments may be sent via www.regulations.gov.
Subsidy Eligibility Based on Employee's Income
“The proposed regulations addressing health insurance coverage subsidies and state exchanges under the PPACA provide important guidance for employers working to comply with the health care law,” commented James A. Klein, president of the American Benefits Council, a national trade association representing employers that sponsor employee benefit plans.
“Most importantly, the federal rules regarding premium subsidy eligibility recognize the importance of determining ‘affordability’ based strictly on an employee’s wages and the cost of individual—not family—coverage, Klein noted. “By simplifying the affordability test, the IRS has spared employers the dual burden of determining nebulous ‘household income’ and performing affordability tests on different premium structures,” he said.
Update: An October 2011 congressional report issued by House Republicans warns that, under the PPACA, if an employee is offered health insurance at work that is "affordable" (by the government's definition) for covering the employee only, then his or her family will not qualify for any subsidies in the state-run exchange.
Grants to States
Also on Aug. 12, 2011, HHS awarded $185 million to 13 states and the District of Columbia to help them build state-run insurance exchanges under the PPACA. The new Exchange Establishment grants are in addition to $50 million that HHS awarded 49 states and the District of Columbia in 2010 to begin planning their exchanges. HHS said it expects to make more grant awards in coming months.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
IRS Seeks Comments on 'Affordable Care' Safe Harbor, SHRM Online Benefits Discipline, September 2011
Measuring the Affordability of Employer Health Coverage, Kaiser Family Foundation, August 2011
SHRM Online Benefits Discipline
SHRM Online Health Care Reform Resource Page