The Internal Revenue Service (IRS) has started giving more details about the help individuals are supposed to get when they buy minimum essential health coverage in 2014.

The IRS has described program details in a batch of Health Insurance Premium Tax Credit draft regulations set to appear in the Federal Register Aug. 17.

The proposed regulations, which would apply to taxable years ending after Dec. 31, 2013, would help implement sections 1311, 1312, 1401, 1411 and 1412 of the Patient Protection and Affordable Care Act of 2010 (PPACA). The PPACA sections are supposed to create a new, exchange-based health insurance distribution system and a refundable premium tax credit individuals and families can use to buy coverage from exchanges.

The IRS expects to hold a hearing on the draft regulations Nov. 17; outlines of topics to be discussed at the hearing are due Nov. 10.

The U.S. Department of Health and Human Services (HHS) released a second batch of draft regulations, concerning exchange eligibility determination procedures and employer exchange standards. Like the IRS draft regulations, the HHS regulations are set to appear in the Federal Register Aug. 17.

The HHS regulations describe the tasks an exchange would perform to help determine whether applicants were eligible for Medicaid, Children’s Health Insurance Program (CHIP) coverage, the tax credits aimed at moderate-income taxpayers, or other programs or subsidies.

Comments on the HHS draft regulations will be due 75 days after the Federal Register publication date.

Treasury Secretary Timothy Geithner says the proposed regulations bring the country a step closer to providing tens of millions of Americans with access to affordable health coverage.

PPACA

PPACA opponents are trying to get the U.S. Supreme Court to strike down the act, and opponents are continuing to try to persuade Congress to repeal part or all of the act.

If act provisions take effect as written and work as drafters expect, new “affordable insurance exchanges” are supposed to start selling standardized health plans to individuals starting in 2014, and Small Business Health Options Program (SHOP) exchanges are supposed to start making subsidized coverage available to small employers that same year. States could choose to combine the individual and small group exchanges or set up separate exchange systems.

PPACA would require many individuals to have health coverage or else pay a penalty.

Most people who were in the United States legally and had incomes under 100% of the federal poverty level (FPL) would get free coverage from Medicaid or another government program.

To get the new refundable tax credit, a taxpayer would have to have an annual household income between 100% and 400% of the federal poverty level.

Taxpayers could get religious exemptions from the “personal responsibility” coverage ownership requirements, and they also could get exemptions from coverage ownership requirements if they could show that the cost of paying for the minimum required level of coverage would exceed 8% of their income.

Federal agencies released earlier batches of exchange program guidance and draft regulations in August 2010, November 2010, March 2011 and July 2011.

HHS officials note in the preamble to their draft regulations that they still plan to draft additional regulations concerning essential health benefits, actuarial value and other benefit design standards; quality standards for exchanges and the carriers that sell coverage through exchanges; and the process exchanges would use to certify that individuals were exempt from insurance ownership requirements.

THE HHS DRAFT REGULATIONS

The HHS draft regulations focus mainly on the process an exchange would have to use to bring taxpayers on board.

HHS calls for exchanges to use “Medicaid modified adjusted gross income” in eligibility matters.

Consumers, or “application filers,” would give exchanges the Social Security numbers for householder members. The exchanges enter the numbers into an electronic system to get financial eligibility information from the U.S. Treasury Department. The exchanges also would be responsible for verifying whether taxpayers were eligible for Medicaid coverage, employer-sponsored coverage, or other coverage that would make them ineligible for the refundable tax credit.

HHS will be developing an appeals process individuals and others can use to appeal eligibility determinations, officials say.

In the SHOP section of the regulations, officials say a small employer that had offices in more than one state could use the SHOP exchange serving its principal business address or the employee’s worksite.

A small business that bought SHOP coverage, then increased employment levels until it was too big to qualify to buy SHOP coverage, could stick with SHOP coverage until and unless it became ineligible for participating in SHOP for reasons other than size, officials say.

HHS officials say they are still working on guidelines exchanges and employers could use to structure employer-exchange communications about employee coverage.

THE IRS DRAFT REGULATIONS

The IRS deals in its draft regulations with matters such as the possibility an individual’s marital status or income could change during a tax year.

A worker eligible to participate in an employer-sponsored plan could buy exchange coverage instead if the worker could show that participating the employer plan would cost more than 9.5% of the worker’s household income.

If a worker’s income increased during the course of a tax year, participating in the employer’s plan could suddenly become affordable, officials say.

To keep workers in that situation from facing big tax bills, the IRS has proposed creating an “employee affordability safe harbor.”

“Under the safe harbor, an eligible employer-sponsored plan is treated as unaffordable for an entire plan year,” IRS officials say in the preamble to their draft regulations. “Thus, for the months during the plan year (which may coincide or overlap with the taxable year) a taxpayer will not lose credit eligibility because, as a result of changes during the taxable year, the employer coverage would have been affordable based on the household income for that taxable year.”

The taxpayer could still lose tax credit eligibility for other reasons, such as an increase in household income for the 400% of the federal poverty limit, officials say.

PPACA will require a large employer that fails to offer employees affordable coverage to pay a penalty for each employee who buys exchange coverage.

Commenters have suggested that some employees might somehow turn out to be eligible for refundable tax credits even if the employers offer affordable, high-quality coverage. In those cases, even employers that offer affordable, high-quality coverage could end up paying penalties, the commenters have told the IRS.

The IRS wants to keep the employee affordability safe harbor from increasing that risk. The IRS will be developing regulations that make it clear that employee use of the affordability safe harbor will not result in the employer paying a penalty, officials say.

The IRS also is responding to concerns about employer plan affordability calculations for a worker with a household income that happens to be lower than the worker’s W-2 income, due to factors such as deductions or a spouse’s business losses.

The IRS intends to develop a safe harbor that will keep an employer in that situation from having to pay penalties, officials say.

“Notwithstanding this safe harbor, employees’ eligibility for a premium tax credit would continue to be based on affordability of employer-sponsored coverage relative to employees’ household income,” officials say.

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