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Proposed Rules Address Issues Related to Individual Mandate

Rules Include Guidance on Treatment of HRAs in Determining Affordability Exemption

New proposed rules address several issues relating to the requirement that individuals maintain minimum essential coverage.

Background 
Effective January 1, 2014, the “individual mandate” provision under Health Care Reform requires every individual to have minimum essential health coverage for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return.

One such exemption applies for individuals who cannot afford minimum essential coverage because the individual’s required contribution, as determined on an annual basis, exceeds a certain percentage (8% for 2014) of the individual’s household income for the most recent taxable year for which information is available.

New Proposed Rules
The new proposed rules address the treatment of health reimbursement arrangements (HRAs) and wellness program incentives for purposes of determining the exemption for individuals who cannot afford employer-sponsored coverage. Under the proposed rules:

  • An employer’s new contributions to an HRA are taken into account in determining (in other words, they reduce) an employee’s required contribution if the HRA is integrated with an employer-sponsored plan and the employee may use the amounts to pay premiums.
    • Amounts in an HRA that may be used only for cost-sharing are not taken into account when determining affordability because they cannot affect the employee’s out-of-pocket cost of acquiring minimum essential coverage.
  • For purposes of determining an individual’s required contribution for coverage under an employer-sponsored plan, wellness program incentives are treated as earned only if the incentives relate to tobacco use.

The proposed rules also provide that certain limited-benefit Medicaid and TRICARE coverage is not minimum essential coverage, and clarify that minimum essential coverage excludes any coverage (whether insurance or otherwise) that consists solely of excepted benefits. Other issues addressed include the hardship exemptions that may be claimed on a federal income tax return and the computation of the monthly penalty amount.

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