Proposed Regulation on PPACA Premium Tax Credit

In general, the Proposed Regulation clarifies which individuals are eligible for federal premium assistance to enroll in a qualified health plan through an Exchange and how that assistance will be calculated.  Importantly, the Proposed Regulation also provides guidance as to the circumstances under which employers will be subject to the “shared responsibility” penalty (which some have referred to as the “play or pay” or “employer mandate” penalty).  The employer mandate penalty generally applies to employers with 50 or more full-time employees and depends in part on whether an employee (or employees) of the employer receives a federal premium tax credit for health insurance coverage through an Exchange. 

Below, and in the next two weeks’ columns, we will answer recently received questions. 

When is an individual eligible for “minimum essential coverage” under an employer-sponsored plan for purposes of the employer mandate penalties?

Under PPACA, the applicability of the employer mandate penalty depends in part on whether an employee qualifies for a premium tax credit with respect to health coverage through an Exchange.  In general, an individual is not eligible for a premium tax credit if he is eligible for “minimum essential coverage” (other than in the individual market).  Minimum essential coverage generally includes coverage under an “eligible employer-sponsored plan.” 

The Proposed Regulation provides some guidance on what it means to be “eligible for an employer-sponsored plan.”  An individual is “eligible” for minimum essential coverage from an employer-sponsored plan if the individual “had the opportunity to enroll in the plan,” even if the individual fails to enroll (and the individual generally is not eligible for premium tax credits in the months thereafter in that year).  However, an individual is only “eligible” for minimum essential coverage from an employer-sponsored plan if the plan is affordable and provides minimum value.  

Is self-funded employer-sponsored coverage treated as "minimum essential coverage" under the PPACA employer "play or pay" penalty?

The preamble to the Proposed Regulation provides that future regulations defining minimum essential coverage are expected to provide that self-funded, employer-sponsored plans are considered minimum essential coverage.  Such guidance would clarify the meaning of ambiguous language in the PPACA statutory language.

Is COBRA coverage treated as "minimum essential coverage" for these purposes?

The Proposed Regulation provides that COBRA coverage is minimum essential coverage only if the individual actually enrolls in the coverage.  This means that a former employee would not be required to enroll in COBRA coverage before becoming eligible for premium tax credits through an Exchange. 

How is the minimum value of employer coverage to be determined for purposes of the employer mandate penalty?

An individual is treated as eligible for minimum essential coverage from an employer-sponsored plan only if the plan provides "minimum value."  Under PPACA, this means that a plan's share of the total allowed costs of benefits provided must be at least 60 percent.  According to the preamble to the Proposed Regulation, HHS is expected to issue regulations on how this percentage is determined later this year.  Importantly, the preamble also states that future regulations are expected to recognize that self-funded, employer-sponsored plans and health insurance coverage offered in the large group market are not required to provide each of the essential health benefits or the ten categories of essential health benefits described in PPACA.  It also indicates that Treasury and IRS are considering whether to provide transition relief with respect to the minimum value requirement. 

Got a health-care reform question?  You can ask YOUR health-care reform legislation question online at http://www.surveymonkey.com/s/second_opinions  

You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html   

Contributors:

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.

PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.