Effective January 1, 2014 all Americans are mandated to have health insurance…
IRS and HHS Issue Proposed Regulations on Individual Mandate
On January 30, 2013, the Internal Revenue Service (IRS) and the Department of Health and Human Services (HHS) issued two sets of proposed regulations relatedto the individual mandate provision of the Patient Protection and Affordable Care Act (PPACA).
The individual mandate requires most individuals to have minimum essential coverage or pay a penalty beginning in 2014. The penalty is now called a “shared responsibility payment.” Some individuals may qualify for an exemption so they will not be required to have coverage or pay a penalty.
The proposed regulations confirm the individual mandate requirements and outline the process for requesting an exemption. The proposed regulations cover:
- What qualifies as minimum essential coverage
- How penalties will be determined and paid
- Who is exempt from paying the penalty
- When individuals can apply for an exemption
1. What Qualifies as Minimum Essential Coverage
An individual is considered to have minimum essential coverage for any month in which he or she is enrolled in one of the following types of coverage for at least one day:
- An employer group health plan
- An individual health insurance policy
- A government plan such as Medicare, Medicaid, Children’s Health Insurance
Program (CHIP), TRICARE or veterans coverage - Student health coverage
- Medicare Advantage plan
- State high risk pool coverage
- Coverage for non-U.S. citizens provided by another country
- Refugee medical assistance provided by the Administration for Children and Families
- Coverage for AmeriCorp volunteers
All these types of plans qualify as minimum essential coverage, and there are no additional coverage requirements that must be met.
2. How Penalties will be Determined and Paid
The first penalties will be due when individuals file their 2014 tax returns in 2015. A penalty is determined by calculating the greater amount of either a flat dollar amount or set percentage of income. The annual penalties for 2014 through 2016 are noted below. Beginning in 2017, penalties will increase based on the cost of living.
- 2014: Greater of $95 per adult and $47.50 per child under age 18 (maximum of $285 per family) or 1% of income over the tax-filing threshold
- 2015: Greater of $325 per adult and $162.50 per child under age 18 (maximum of $975 per family) or 2% over the tax-filing threshold
- 2016: Greater of $695 per adult and $347.50 per child under age 18 (maximum of $2,085 per family) or 2.5% over the tax-filing threshold
If the penalty applies for less than a full calendar year, the penalty will be 1/12 of the annual amount per month without coverage.
3. Who is Exempt from Paying the Penalty for Not Having Coverage
Individuals who meet the following criteria will not pay a penalty if they do not have minimum essential coverage:
- Individuals who cannot afford coverage. Coverage is considered unaffordable if an individual’s contribution toward minimum essential coverage is morethan 8% of the annual household income. The monthly contributions are calculated at 1/12 the annual household income to determine if they exceed the 8%.
- Taxpayers with income below the tax filing threshold, which is the amount required to file a federal tax return
- Individuals who qualify for a hardship exemption. This exemption is available to individuals who are not eligible for Medicaid because their state chose not to expand Medicaid, or to individuals who have a personal or financial hardship that keeps them from being able to afford coverage.
- Individuals who have a gap in minimum essential coverage of less than three consecutive months in a calendar year
- Members of religious groups that object to coverage on religious principles
- Members of health care sharing ministries. These are non-profit religious organizations where members share medical costs.
- Individuals in prison
- Individuals who are not U.S. citizens
- Members of Native American tribes
U.S. citizens residing in a foreign country are typically exempt from having minimum essential coverage if they meet certain requirements, such as residing abroad for an entire calendar year. And, residents of U.S. territories (Guam, American Samoa, Northern Mariana Islands, Puerto Rico, and Virgin Islands) are automatically deemed to have minimum essential coverage.
4. When Individuals Can Apply for an Exemption
There are times when a person may request exemption. The Exchange will review the application, issue a certificate of exemption and notify the IRS. Other types of exemptions are claimed when individuals file their federal income tax returns.
- Religious and hardship exemptions are only available when applying through an Exchange.
- Individuals who cannot afford coverage, who experience short coverage gaps, who are not U.S. citizens and who have household incomes below the filing threshold may apply for an exemption through the IRS.
- Members of a health care sharing ministry, individuals in prison and members of Native American tribes may apply for an exemption through either an Exchange or through the IRS when filing a federal tax return.
Comments regarding the HHS regulations are due by March 18, 2013. Comments regarding the IRS regulations are due by May 2, 2013 and a public hearing is scheduled for May 29, 2013.
Information Provided by Cigna Corporation,2012- 2013
For more details:
The Centers for Medicare and Medicaid Services (CMS) has an online Fact Sheet.
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Click here to read the IRS |
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Click here to read the HHS |
Spotlight on Consumer Driven Health Plans (CDHP’s)
Health Insurance companies across the country are experiencing significant growth in their Consumer Driven Health Plan enrollment. A CDHP is a high deductible health plan married with a savings option such as a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA). The chart below shows the growth from 4% in 2006 to 19% in 2012.
Cigna Health Corporation, a global health service company, with 31,000 employees and 71 million customers, recently released their 7th Annual Cigna Choice Fund Experience Study. Below is a summary of their findings.
- Cigna CDHP customer base grew 26 percent in 2012
- Cigna Study: CDHP customers lowered their costs an average of 13 percent while improving their health profile
- CDHP customers are more engaged in making informed health care choices
CIGNA consumer driven health plans flourish despite difficult economy, increasing regulations
BLOOMFIELD, Conn., February 13, 2013 – In the face of another year of economic volatility and legislative and regulatory change, Cigna’s consumer-driven health plan (CDHP) participation grew by 26 percent during 2012, resulting in one-in-five Cigna customers now participating in a Health Savings Account (HSA) or Health Reimbursement Account (HRA).
“The growth of consumer-driven health plans continues because they help customers reduce their health risks and improve the quality and efficiency of their care, which result in lowering their total medical costs,” said Cigna President and Chief Executive, David M. Cordani. “The evidence in our Seventh Annual Cigna Choice Fund Experience Study is clear, consistent and compelling: our CDHP customers are more engaged with their health and health spending, they spend less to receive the same levels of recommended care, and are more satisfied with their health care experience.”
Released today, the Seventh Annual Cigna Choice Fund Experience Study compares the actual claims experience of more than 2.5 million Cigna customers who are enrolled in either a CDHP, a traditional PPO or HMO health plan. The annual study provides empirical evidence that properly designed CDHP plans improve total medical cost without compromising care or shifting costs from the employer to employees.
According to the study, when compared to customers in traditional PPO and HMO plans, those in a CDHP:
- Lowered their health risks: Cigna CDHP customers lowered their risk of developing or worsening a chronic condition. According to the study, when employers fully transitioned to offering only a CDHP option, individuals improved their health risk profile by 12 percent in the first year compared to customers in a traditional plan.
- Reduced total medical costs: Cigna CDHP medical cost trend was 13 percent lower than traditional plans during the first year: costs were 20 percent lower for HSA customers and 11 percent lower for HRA participants. Cost reductions were achieved without employers shifting out-of-pocket health expenses to their employees. Notably 75 percent of HSA customers contribute more to their
accounts than they spend. - More engaged in health improvement: Cigna CDHP customers were twice as likely to complete a health risk assessment and CDHP customers with a chronic illness are up to 25 percent more likely to participate in a disease management program than those enrolled in a traditional plan.
- Were more likely to compare cost and quality: Cigna CDHP customers were 59% more likely to use the directory to access cost and procedure information to help them review potential medical costs.
- Were more savvy consumers of health care: Customers with Cigna Choice Fund plans and Cigna pharmacy benefits were more likely to choose generic medications compared to those in a traditional plan. In addition, CDHP customers used the emergency room at a six percent lower rate than individuals enrolled in HMO and PPO plans.
- Received higher levels of care: Cigna CDHP customers had consistent or higher compliance with over 300 evidenced-based medical best practices than their counterparts in traditional plans. Cigna CDHP customers also sought preventive care, such as annual office visits and mammograms, more frequently than customers enrolled in a traditional plan.
Contact DDI for more information about CDHP’s and whether they would be a good fit for your organization.
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