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Regulation and Compliance > Federal Regulation > IRS

IRS completes health penalty rules

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Who will really have to pay the penalties to be imposed on the uninsured next year?

The Internal Revenue Service has tried to answer that question in a new batch of final regulations on the Patient Protection and Affordable Care Act individual coverage ownership mandate provisions – the rules that determine who has to pay penalties for not having health insurance.

The IRS refers to the provisions as the “shared responsibility” rules. PPACA says people have a responsibility to have a minimum level of coverage — “minimum essential coverage.”

The “MEC” rules, in Section 5000A of the Internal Revenue Code, are similar to but separate from another complicated batch of rules for figuring out which taxpayers qualify for the new PPACA health insurance tax credit.

The final regs, based on a February draft, are set to appear in the Federal Register Friday. Officials are estimating that 36 million taxpayers will have to fill out MEC-related paperwork, and that figuring out whether the shared responsibility rules apply will take an average of about 12 minutes per taxpayer.

As expected, the IRS has ruled that unions and other organizations, including professional employer organizations — PEOs — can provide coverage that meets the MEC standards and frees workers from having to pay penalties.

An employer’s self-insured plan will also meet the MEC standards, whether or not the self-insured plan could be sold in a state’s large-group or small-group insured market.

The IRS has not yet decided what to say about an employer that simply gives workers cash and sends them out to buy their own individual health coverage, through the new public exchange system or a private exchange.

The IRS will define ordinary Medicaid coverage as MEC.

Pregnant women with Medicaid will not have MEC, because some states offer pregnant women skimpy forms of Medicaid, officials said.

The IRS has not yet decided what to do about “medically needy” people with Medicaid — nursing home residents and others who, technically, are not poor, but qualify for Medicaid because of high medical expenses. The U.S. Health and Human Services secretary may decide that some of them have MEC, IRS officials said.

IRS officials also:

- Decided taxpayers should have to take responsibility for health penalties for any dependents they have, whether the taxpayers claim the children as dependents or not.

- Held that neither adoptive parents nor parents placing a child up for adoption need to worry about a shared responsibility penalty during the month that the child is adopted.

- Suggested that, to keep things simple, people can get out of paying the penalties if they can show that they and their dependents have had coverage for at least one day per month for at least nine months out of the year and haven’t abused the system by intentionally buying insurance that protects them for just one day per month. “The IRS will reconsider this rule if future developments indicate that the rule is being abused,” officials said. 

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