IRS Issues Notices On Determining Minimum Essential Coverage; Transition Relief For Employees At Companies With Non-Calendar Year Plans

The Internal Revenue Service has issued two Notices that deal with different provisions in the Patient Protection and Affordable Care Act (ACA). Notice-2013-41 provides guidelines on how to determine if an individual is eligible for minimum essential coverage for purposes of the premium tax credit allowable under Sec. 36B. Notice 2013-42 provides relief from the shared responsibility payment for specified individuals who are eligible to enroll in employer-sponsored plans that are non-calendar year plans.

Notice 2013-41

Notice 2013-41provides guidance on whether or when, for purposes of the premium tax credit under Sec. 36B, an individual is eligible for minimum essential coverage under certain government-sponsored health programs or other coverage designated as minimum essential coverage. This notice applies for taxable years ending after Dec. 31, 2013.

Under the ACA, beginning in 2014, eligible individuals who purchase coverage under a qualified health plan through a health insurance exchange are allowed a premium tax credit under Sec. 36B. Notice 2013-41 determines whether or when certain individuals are eligible for minimum essential coverage under the Medicaid, Medicare, the Children’s Health Insurance Program (CHIP), or TRICARE programs for purposes of the premium tax credit. In addition, Notice 2013-41 also provides rules for eligibility for minimum essential coverage through self-funded student health plans and state high risk pools.

The notice provides these specific examples:

1. Disenrollment from CHIP or Medicaid for non-payment of premiums. In some states, an individual who loses CHIP coverage due to a failure to pay premiums may not re-enroll in CHIP for a certain period of time (lockout period). Such an individual is treated as eligible for CHIP and is not eligible for qualified health plan coverage subsidized by the premium tax credit during the lockout period. In addition, an individual who is terminated from Medicaid or CHIP for failure to pay premiums is treated as eligible for Medicaid or CHIP during any period for which the individual would be eligible for Medicaid or CHIP except for the failure to pay premiums.

2. CHIP waiting period. An individual who may not enroll in CHIP during a pre-enrollment waiting period is treated as not eligible for CHIP coverage during the waiting period. Accordingly, the individual may be eligible for qualified health plan coverage subsidized by the premium tax credit during this period.

3. Eligibility based on agency determination. If eligibility requires a determination or disability or diagnosis of a particular disease, Notice 2013-41 clarifies that, for purposes of the premium tax credit, an individual is eligible for minimum essential coverage under Medicaid or Medicare in the circumstances described below only upon a favorable determination of eligibility by the responsible agency: (a) Medicaid coverage requiring a finding of disability or blindness; or (b) Medicare coverage based solely on a finding of disability or illness.

4. Eligibility based on enrollment. An individual is eligible for minimum essential coverage under the following programs for purposes of the premium tax credit only if the individual is enrolled in the coverage:

a. Medicare part A coverage requiring payment of premiums.

b. State high risk pools.

c. Student health plans.

d. Under the following TRICARE programs:

i. The Continued Health Care Benefit Program;

ii. Retired Reserve;

iii. Young Adult; and

iv. Reserve Select.

Comments must be submitted before Aug. 26, 2013, and may be submitted by mail to Internal Revenue Service, CC:PA:LPD:PR (Notice 2013-41), Room 5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044; or electronically to Notice.Comments@irscounsel.treas.gov.

Notice 2013-42

Notice 2013-42 provides relief from the Sec. 5000A shared responsibility payment for specified individuals who are eligible to enroll in certain employer-sponsored health plans with a plan year other than a calendar year (non-calendar year plans) if the plan year begins in 2013 and ends in 2014. Under the ACA, for each month beginning after Dec. 31, 2013, Sec. 5000A requires individuals who are not exempt to either maintain minimum essential coverage for themselves and any nonexempt family members or include an individual shared responsibility payment with their federal income tax return.

Many employer-sponsored plans have a non-calendar plan year. Generally, eligible employer-sponsored plans do not permit employees to enroll in the plan after the beginning of a plan year unless certain triggering events occur, such as a change in employment status. Without transition relief, therefore, the IRS noted that many individuals eligible to enroll in non-calendar year employer-sponsored plans would need to enroll in 2013, when Sec. 5000A does not yet apply, in order to maintain coverage under an eligible employer-sponsored plan for months in 2014, when Sec. 5000A does apply.

In order to provide transition relief during the first year that Sec. 5000A applies to individual taxpayers, an employee, or an individual having a relationship to the employee, who is eligible to enroll in a non-calendar year employer-sponsored plan with a plan year beginning in 2013 and ending in 2014 (the 2013-2014 plan year) will not be liable for the Sec. 5000A shared responsibility payment for certain months in 2014. The transition relief begins in January 2014 and continues through the month in which the 2013-2014 plan year ends.

The relief provided by Notice 2013-42 applies only for determining a taxpayer’s Sec. 5000A shared responsibility payment for not maintaining minimum essential coverage. Any month in 2014 for which an individual is eligible for the transition relief provided by this notice will not be counted in determining a continuous period of less than three months for purposes of the short coverage gap exemption described in Sec. 5000A(e)(4).

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