Guidance on Purchasing Health Coverage in an Insurance Exchange

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On August 17, 2011, the Departments of Health and Human Services (HHS) and Treasury, respectively, issued guidance on (1) the ability of individuals and small employers to purchase health coverage in an insurance exchange, and (2) the premium tax credits for individuals who buy that coverage and whose income is between 100% and 400% of the federal poverty level (FPL). Though neither set of rules has a direct impact on large employers, the rules have some implications for large employers under the so-called “employer shared responsibility” requirements. In addition, the preamble to the proposed Treasury regulations includes several statements regarding rules that are expected to be included in forthcoming guidance on the employer shared responsibility and other related rules.

Background

Section 1501 of the Patient Protection and Affordable Care Act (PPACA) amended the Internal Revenue Code (Code) to add section 5000A implementing the individual mandate effective for taxable years after 2013. The individual mandate requires individual taxpayers to obtain health coverage that provides minimum essential coverage for themselves and their dependents or pay a penalty.

Under section 1301, et seq. of PPACA, states must establish insurance exchanges by 2014. The exchanges are to offer qualified health plans to be issued by insurance carriers and that cover essential health benefits in 10 categories with specified limits on cost-sharing for covered individuals. The plans are to pay, an average, of at least 60% of the cost of covered services for bronze plans, 70% for silver plans, 80% for gold plans and 90% for platinum plans.

Code section 36B, which was added by section 1401 of PPACA, provides for a premium tax credit to help individuals buy coverage in an exchange if they meet certain income and other requirements. The exchanges are to determine individuals’ eligibility for the premium tax credits, and the tax credits generally are to be advanced by Treasury to the insurers who provide coverage to these individuals. The Treasury regulations proposed to implement these tax credits effective for taxable years after 2013 are discussed below.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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