By Marla G. Roshkoff and Edward I. Leeds
Following up on guidance issued last month, the Department of Health and
Human Services has proposed two new sets of regulations and the Department of
the Treasury has proposed one on the state-based health insurance marketplaces
known as Affordable Insurance Exchanges. (To view our alert on the earlier
guidance, click here.)
The Patient Protection and Affordable Care Act (the 2010 health care
reform legislation) established these Exchanges with the intent of expanding
access to health insurance coverage for uninsured and underinsured individuals
while providing more cost-effective health coverage for employees of small
businesses. Beginning January 1, 2014, individuals and small businesses will be
able to purchase private heath insurance through an Exchange.
State Exchange Eligibility and Employer Standards
The first rule proposed by HHS addresses eligibility determinations for
both Exchange participation and insurance affordability programs, along with
standards for employer participation in the Small Business Health Options
Specifically, the proposed rule establishes a coordinated system through
which an individual may apply for and receive a determination of eligibility
for enrollment in a qualified health plan through an Exchange while also being
advised of eligibility for certain programs aimed at making health insurance
affordable to individuals based on income.
Exchanges will be responsible for determining an individual's
eligibility for all available plans and programs based on a single application
process. The Exchange will determine if an individual may participate in a
qualified health plan through the Exchange; the extent to which financial
assistance will be available to the individual for such coverage, including
cost-sharing reductions or advance payment of the premium tax credit; and
whether the individual qualifies for a government-based assistance program,
such as Medicaid or the Children's Health Insurance Program (CHIP).
The proposed rule provides detailed guidance on the responsibility of
the Exchange to verify applicant information and coordinate with
government-based programs to provide a streamlined, consumer-oriented process
for the applicant.
The proposed rule also provides additional guidance on SHOP, which
generally aims to make appropriate, affordable health insurance options
available to employers with no more than 100 employees. The guidance requires
participating employers to disseminate information to employees about how to
enroll in a qualified health plan through SHOP. It is expected that such
information will include time frames for enrollment, instructions for accessing
the SHOP Web site (to compare qualified health plans), and the SHOP toll-free
consumer assistance telephone number.
The guidance addresses various aspects of an employer's participation in
SHOP, including guidance on an employer's selection of health insurance plans,
the timing of participation and employee enrollment, the opportunities that an
employer may make available to employees to elect health insurance, and the
information that an employer must provide SHOP regarding the eligibility of
employees. There are no statutory domicile or residency requirements for participation
in SHOP. The preamble to the proposed guidance provides flexibility to
employers and suggests that employers use the SHOP servicing the employer's
principal business address or the SHOP serving the employee's primary worksite.
Once qualified to participate in SHOP, an employer may continue to
participate even if the number of its employees increases above 100, as long as
the employer otherwise continues to qualify.
Medicaid Program and Eligibility Changes
The second rule proposed by HHS supplements the first rule by providing
guidance on the coordination between government-based assistance programs (such
as Medicaid and CHIP) and Exchanges with respect to eligibility and enrollment.
The proposed rule also sets out increased federal medical assistance percentage
rates and related conditions and requirements for assistance.
The proposed rule amends federal policies and guidelines to allow
Exchanges to determine eligibility for government-based assistance programs and
to permit the use of a single, streamlined application process for eligibility
determinations and enrollment across available assistance programs. It also
revises income eligibility standards for program participation.
Premium Tax Credit Guidance
The Treasury Department issued a proposed rule providing guidance
on the premium tax credit created by PPACA to help individuals and families pay
for qualified health insurance coverage purchased through an Exchange. The
credit is designed to reduce a taxpayer's out-of-pocket premium cost for qualified
health plan coverage.
The Exchange makes an advance determination of eligibility for the tax
credit and payments are made monthly to the qualified health plan in which the
individual enrolls. A taxpayer is responsible for reconciling the actual premium
tax credit computed on the taxpayer's tax return with the actual amount of
advance payments. If the credit is greater than the amount received, the
taxpayer will be entitled to an income tax refund. If actual payments exceed
the credit amount, the taxpayer's tax liability will be increased.
Eligibility for the premium tax credit is based on household income and
dependency status. An individual is not eligible if any of the following holds
The individual is
eligible for certain other minimum essential coverage, such as government
coverage, including Medicare, Medicaid, and CHIP, or certain employer-sponsored
The employee's share of
the premium is affordable and the coverage meets prescribed minimum standards.
The employer's plan does
not provide affordable minimum essential coverage, but the individual enrolls
in the plan anyway.
To be eligible for the credit, an individual must have household income
that is at least 100 percent, but not more than 400 percent, of the federal
poverty level (individuals with lower income levels are eligible for Medicaid
and therefore not eligible for the credit).
The regulation offers additional guidance on certain situations
affecting whether an individual is eligible for affordable minimum essential coverage
and, therefore, ineligible for the premium tax credit. In particular, the
guidance provides that an individual's mere eligibility for continuation
coverage will not be considered eligibility for minimum essential coverage
unless the individual actually enrolls in the continuation coverage.
The guidance also provides a safe harbor for an individual who declines
employer-sponsored coverage when an Exchange determines that the coverage is
unaffordable. Under this safe harbor, the coverage will still be treated as
unaffordable for the entire plan year for the purpose of allowing the
individual to continue to qualify for the tax credit if the coverage is later
determined to be affordable based on the individual's household income for the
year (so long as the individual is otherwise eligible for the credit).
Although not addressed directly in the new proposed regulations
themselves, the preamble suggests that future guidance will provide certain
relief to large employers (with at least 50 employees) that might otherwise be
required to pay penalties for not providing affordable coverage. A large
employer that offers health coverage to full-time employees and dependents is
subject to a penalty if one or more full-time employees are certified to
receive a premium tax credit or cost-sharing reduction because the
employer-sponsored coverage either fails to provide minimum value or is
determined to be unaffordable to the employee.
As currently stated in the proposed regulations, coverage will be
considered affordable if an employee is not required to contribute more than
9.5 percent of his or her "household income" for the taxable year toward the
cost of self-only coverage. Recognizing that employers will often have
difficulty determining an employee's household income, the preamble states that
future regulations are expected to provide a safe harbor based on 9.5 percent
of an employee's W-2 wages.
If you have questions about these guidelines, please contact Marla G.
Roshkoff at 215.864.8417 or email@example.com, or Edward I. Leeds at
215.864.8419 or firstname.lastname@example.org.
As the federal health care reform effort gained steam, Ballard Spahr
attorneys formed an initiative to monitor and analyze legislative developments.
With federal health care reform now a reality, our attorneys are assisting
employers in understanding the relevant changes and planning for the future.
For more information on the firm's Health Care Reform Initiative, please click here.
Copyright © 2011 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted in any form or by any means,
including electronic, mechanical, photocopying, recording, or otherwise,
without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is
intended to notify recipients of new developments in the law. It should not be
construed as legal advice or legal opinion on any specific facts or
circumstances. The contents are intended for general informational purposes
only, and you are urged to consult your own attorney concerning your situation
and specific legal questions you have.
Edward I. Leeds
Benefits and Executive Compensation
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