Reform Update: Health Insurance Premium Tax Credit Released

This week’s edition includes information about:

Health Insurance Premium Tax Credit Rule Released

The Patient Protection and Affordable Care Act (Affordable Care Act) makes premium tax credits available to eligible individuals that enroll through the Exchange. Individuals are only eligible to receive a premium tax credit if they are not eligible for other minimum essential coverage – including employer-sponsored coverage that is affordable, with a minimum actuarial value of 60 percent.

On Wednesday, May 23, 2012, the Internal Revenue Service (IRS) and Treasury posted the Health Insurance Premium Tax Credit final rule to the federal register. The final regulations maintain the definitions of affordable coverage and minimum value outlined in the proposed rule and provides several examples of how to determine eligibility for the premium tax credit based on affordability.

The proposed rule, which was originally posted to the Federal Register on Aug. 17, 2011, defined affordable employer-sponsored coverage as coverage that costs no more than 9.5 percent of household income, based on the amount an employee contributes toward self-only coverage regardless of the coverage tier in which an employee enrolls. While commentators felt that this was acceptable for determining the affordability of coverage for individual employees, they suggested that the affordability of coverage for related individuals – family members or dependents – should be based on the portion of premium the employee must pay for family coverage. Therefore, the final rule only adopted the affordable coverage definition for employees and has reserved defining affordable coverage for related individuals for future guidance. Additional guidance is also expected to address the effect of wellness incentives and amounts made available under health reimbursement arrangements (HRAs) on determining the affordability of eligible employer-sponsored coverage.

The final rule does not include the Affordability Safe Harbor for Employers originally proposed in IRS Notice 2011-73. This notice suggests that the safe harbor will allow employers to use W-2 wages for the purpose of assessing affordability. In some situations, household income can be less than an employee’s W-2 wages due to adjustments to gross income. In these cases, the employer will not be assessed a penalty under the safe harbor, as long as the self-only contribution divided by the W-2 wages is 9.5 percent or less. Future guidance regarding the safe harbor is expected to be included with proposed regulations addressing the employer shared responsibility provisions of the Affordable Care Act.

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