The IRS has finalized its
regulations on the individual shared responsibility provisions
contained in the Patient Protection and Affordable Care Act
("PPACA"). Despite the delay, until 2015, for the employer
shared responsibility penalties, the individual shared responsibility
provisions, and penalties, will be effective for 2014. Under these
provisions, all individuals (with certain limited exceptions-see the Alert
of 2/14/13) must either be insured by "minimum essential
coverage" or pay a penalty on their federal tax returns.
The final regulations make
only minor changes to the proposed regulations that were issued
earlier this year.
Coverage. For purposes of the
shared responsibility penalty, an individual is considered to have
minimum essential coverage for any month in which he or she is
enrolled in one of the following types of coverage for at least one
coverage (including COBRA and retiree coverage);
purchased in the individual market; or
coverage, such as Medicare, Medicaid, the Children's Health
Insurance Program, or TRICARE.
Under the final
regulations, employer-sponsored coverage includes plans offered
"on behalf of employers" such as multiemployer plans or
plans offered by a third party such as a professional employer
The final regulations do not
address arrangements in which an employer provides subsidies or funds
a pre-tax arrangement for employees to use to obtain coverage in the
individual market. According to IRS, "it is anticipated that
future guidance will address the application" of the regulations
to these types of arrangements.
Minimum essential coverage
does not include specialized coverage such as vision care or dental
care, workers' compensation, disability policies, or coverage for a
specific disease or condition. The final regulations state that
certain limited TRICARE programs are also excluded from the
definition of minimum essential coverage and that more details will
be provided under future regulations.
Responsibility Penalty. The
penalty is the greater of a flat dollar amount or a specific
percentage of income. For 2014, the penalty amount will be the
greater of $95 per adult and $47.50 per child under age 18 (maximum
of $285 per family) or 1% of income over the tax-filing threshold
(currently, $19,500 for a 2012 joint return).
The preamble to the final
regulations states that a taxpayer will be liable for the penalty
imposed on his or her dependent, regardless whether the taxpayer
actually claims the individual as a dependent or whether another
person is legally obligated to provide the child's health care
coverage. However, HHS may grant a hardship exemption if the child is
ineligible for Medicaid or CHIP.
The 2014 shared
responsibility penalties are payable when individuals file their 2014
federal income tax returns in 2015. If the penalty applies for less
than a full calendar year, it is prorated to 1/12 of the annual
penalty for each month without coverage.