Final regulations for implementing the health insurance purchase tax credit provisions in the Patient Protection and Affordable Care Act of 2010 (PPACA) are set to appear in the Federal Register Wednesday.
PPACA opponents are challenging PPACA in Congress and the courts. If the act takes effect on schedules and works as drafters hope, individuals and small groups will be able to use PPACA tax incentives to buy coverage through a new system of health insurance exchanges, or Web-based health insurance supermarkets.
The new regulations, the Health Insurance Premium Tax Credit regulations, apply to individuals who buy coverage through the exchanges. The final regulations are based on draft PPACA tax credit regulations that were published in August 2011.
PPACA calls for individuals with incomes under 100% of the federal poverty level to be eligible for free coverage.
The U.S. Treasury Department, the parent of the IRS, says PPACA individual health insurance tax credits will be available to individuals and families with incomes from 100% to 400% of the poverty level. In 2011, families of four with incomes of $22,350 to $89,400 could have qualified for the credit, officials say.
The average credit for eligible individuals and families could be about $5,000 per year, officials say, citing estimates from the Congressional Budget Office. Milliman Inc., Seattle, recently reported that a typical employer is probably spending about $21,000 per year on health benefits for good preferred provider organization coverage for a worker in a family of four.
The typical credit amount will be equal to the difference between the premium for a "benchmark plan" and the taxpayer's "expected contribution" for health coverage.
Taxpayers can get the credit during the year, months before they file their income tax returns, to help them pay for coverage.
Under PPACA, exchanges are supposed to offer 4 levels of health plans -- platinum, gold, silver and bronze -- with the levels based on how much of the cost of "essential health benefits" that a particular plan will cover.
For health insurance tax credit purposes, the benchmark plan will be the second-lowest-cost plan available through an exchange that would cover a family at the "silver" level of coverage, officials say.
The "expected contribution" is defined by PPACA and will range from 2% of income for families at 100% of the federal poverty level to 9.5% of income for families at 400% of the federal poverty level.
PPACA will not let carriers reject applicants with health problems or base premiums on applicants' age, but it will let carriers charge older enrollees up to 4 times as much as they charge younger enrollees. Older tax credit recipients will be able to get larger credits than younger recipients, officials say.
Families can receive the full value of the credit even if the value of the credit exceeds the value of the income taxes they pay, but no family can get a credit that exceeds the premium for the plan purchased, officials say.
One question insurers, agents and brokers have had is how the IRS and other agencies will treat health savings account (HSA) plans, health reimbursement arrangement (HRA) plans, and other individual health account plans in connection with PPACA provisions and programs.
PPACA requires an employer that fails to offer affordable health coverage to an employee to pay a "shared responsibility" penalty for the employee. The IRS has suggested that an employer might have to pay the penalty if the employee's share of the cost of the employer's cheapest plan exceeds 9.5% of the employee's W-2 pay from that employer.
The IRS will not include employer HSA contributions when determining whether the employer's coverage is affordable, officials say.
The IRS also will not include amounts available through an HRA that may be used only to reimburse medical expenses other than the employee’s required share of the cost of employer-sponsored coverage, officials say.
"These final regulations do not address how other HRAs are treated for purposes of determining the affordability of an employer-sponsored plan, which may be addressed further in additional published guidance," officials say.
The regulations authorize the IRS commissioner to determine whether wellness incentive programs should count in affordability calculations, officials say.
"Comments are requested on types of wellness incentives, how these programs affect the affordability of eligible employer-sponsored coverage for employees and related individuals, and how incentives are earned and applied," officials say. "The administrability of any rule on wellness incentives must consider the extent to which employees can be certain they will qualify for the incentives at the time they otherwise would be evaluated for eligibility for advance credit payments."
The IRS will require individuals applying for health insurance tax credits to give information about whether they have access to employer-sponsored coverage.
The IRS will provide a "safe harbor" for individuals who give the IRS information about whether they have access to affordable employer-sponsored coverage. But "the final regulations provide that the affordability safe harbor does not apply if a taxpayer, with reckless disregard for the facts, provides incorrect information to an exchange concerning an employee’s portion of the annual premium for employer coverage," officials say.
Individuals who are getting a credit must notify the IRS when they get access to different coverage, officials say.
Officials note that families may be eligible for tax credits if a member of the family is covered by affordable employer-sponsored health insurance but other family members must buy coverage through an exchange. Officials do not say whether the ability of a family to qualify for a health insurance tax credit would have any effect on whether an employer owes shared responsibility penalties.
Comments on the final regulations will be due 90 days after the official Federal Register publication date.