United States: IRS Issues Final Regulations On Individual Mandate To Maintain Healthcare Coverage

Last Updated: September 4 2013
Article by Robert B. Wynne and Larry R. Goldstein

This is the 38th in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the Act). In this article, we discuss the final regulations (Regulations) issued earlier this week by the Internal Revenue Service (IRS) addressing the Act's requirement for individuals to maintain minimum essential healthcare coverage or pay a penalty (Individual Mandate) beginning in 2014.


Under Section 5000A of the Internal Revenue Code (Code), an "applicable individual" must either maintain "minimum essential coverage" (MEC) for himself or herself and any nonexempt family members or include an additional payment with his or her federal income tax return. Section 5000A has been described as the linchpin of the Act. The decision of the U.S. Supreme Court in National Federation of Independent Business v. Sebelius, 2012 U.S. LEXIS 4876 (2012), upholding the constitutionality of Section 5000A under Congress' taxing power, enabled healthcare reform under the Act to proceed.

The IRS issued proposed regulations (Proposal) under Section 5000A last February. The Proposal was the first significant guidance from the IRS as to the Individual Mandate.

In an earlier WorkCite article, we discussed the provisions of the Proposal as to who is covered by the Individual Mandate, what individuals must do to comply and how liability is calculated if an individual failed to maintain MEC.

The Regulation includes most of the provisions in the Proposal and clarifies certain healthcare coverage options that qualify as MEC and elaborates on several of the exemptions from the Individual Mandate. The preamble to the Regulation addresses future IRS guidance to be issued.

Healthcare Coverage Options Qualifying as MEC

Several provisions of the Regulation or its preamble clarify the Proposal's broad definition of what constitutes MEC. The following qualify as MEC under the Regulation:

  • Self-insured group health plans: A self-insured group health plan qualifies as an eligible employer-sponsored plan.
  • Nonappropriated Fund Health Benefits Program: Although the Proposal generally provided that a governmental-sponsored program was not an eligible employer-sponsored plan, the Regulation acknowledges the existence of certain individuals who are eligible for MEC under government-sponsored plans by reason of employment with the U.S. Government, including the Department of Defense's Nonappropriated Fund Health Benefits Program.
  • Exchange-provided qualified health plans: Qualified health plans offered through the health insurance exchanges being established under the Act are "plans in the individual market" for purposes of qualifying as MEC.
  • Exchange-provided qualified health plans offered in U.S. territories: The Act provides that a U.S. territory electing to establish a health insurance exchange is treated as a state for applying basic regulations under the Act. The Regulation clarifies that a qualified health plan offered through an exchange established by and within a U.S. territory is treated as a "plan in the individual market" within a state.
  • Medicaid benefits suspended while incarcerated: An individual incarcerated pending disposition of charges whose Medicaid benefits have been suspended.
  • Medicaid premium assistance programs: Coverage under a Medicaid premium assistance program for certain individuals.
  • Plans offered on behalf of employers: Plans offered to employees on behalf of employers (such as multiemployer plans or single-employer collectively-bargained plans)

Exemptions for Certain Applicable Individuals

The Regulation or its preamble clarify several of the exemptions from the Individual Mandate for certain applicable individuals.

  • Additional hardship exemptions: Applicable individuals may claim hardship exemptions under the following two scenarios:

    • A taxpayer is not required to file an income tax return because his or her gross income is below the applicable return filing threshold, but the taxpayer files a return nevertheless, claiming a dependent (who has a filing requirement) and, as a result, had household income exceeding the applicable filing threshold.
    • Employed family members who are eligible for affordable employer-sponsored self-only coverage, but for whom the aggregate cost of employer-sponsored coverage for all employed members of the family is unaffordable.
  • Unaffordable coverage exemption for retirees: For purposes of the unaffordable coverage exemption from the Individual Mandate (which is available for individuals who cannot afford coverage because the premium cost is greater than 8 percent of household income), one is not considered eligible for retiree coverage unless he or she enrolls. This means that an individual who is eligible for retiree coverage but does not enroll disregards that eligibility in determining his or her qualification for the unaffordable coverage exemption.
  • Short coverage gap: Gaps in coverage prior to Jan. 1, 2014 are not taken into account when measuring the length of a coverage gap in 2014.

Anticipated Future Guidance

The IRS anticipates issuing guidance that will provide individuals an exemption from the Individual Mandate penalties for any month in which they are covered by any of the following types of coverage in 2014 (which currently do not qualify as MEC under the Regulation):

  • Pregnancy-related Medicaid coverage
  • Coverage under a limited-benefit TRICARE program for active and retired military personnel and their dependents
  • Certain coverage under certain demonstration projects under Section 1115 of the Social Security Act authorized by the Department of Health and Human Services to test new or existing approaches to financing and delivering Medicaid

Additional future IRS guidance will address the following:

  • Other government-sponsored plans qualifying for MEC as eligible employer-sponsored plans
  • Arrangements in which an employer provides subsidies or funds a pre-tax arrangement for employees to use to obtain coverage under plans offered in the individual market
  • Whether Medicaid coverage provided to medically-needy individuals is MEC
  • How individuals may claim the exemption for being not lawfully present in the U.S.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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