The Internal Revenue Service (IRS) has released a final rule that specifies the income tax penalties to which individual taxpayers will be subject if they do not obtain healthcare coverage in 2014. The rule implements the individual or “shared responsibility” mandate of the Patient Protection and Affordable Care Act (ACA), which requires most Americans to either have a minimum level of health insurance or pay an income tax penalty. Employer-sponsored coverage qualifies as minimum essential coverage.
Exemptions from the penalty are available, such as for individuals who qualify for Medicaid coverage but who live in states that have not adopted the ACA’s expanded Medicaid provisions. Also exempt are individuals for whom coverage is unaffordable (i.e., costing more than 8% of household income); those who are uninsured temporarily (e.g., no more than three consecutive months between jobs); and those who oppose having insurance coverage for religious reasons.
The penalty for not having insurance next year will be the greater of $95 or 1% of 2014 household income, in general. The penalties will increase in future years.
Federal premium subsidies will be available for certain low- and moderate-income households, including pre-Medicare-eligible retirees who are eligible for, but do not enroll in, any healthcare coverage that may be offered by their former employers. Similarly, subsidies will be available for former employees and their dependents who are eligible for, but not enrolled in, COBRA continuation coverage.
Although this final rule will not directly affect employer-sponsored group healthcare programs, Milliman consultants are available to discuss the ACA’s individual penalty requirements. The IRS is expected to issue separate guidance on issues of greater interest to employers, such as if an employer subsidizes or funds pretax arrangements for employees to obtain coverage in the individual market.