Final regulations now provide guidance on what coverage individuals must maintain to meet health care reform’s individual mandate. Health care reform generally requires all individuals to have affordable health coverage, qualify for an exemption, or pay a penalty when filing their tax return. The IRS issued final regulations on the individual mandate.
The final rules mostly track previous proposed guidance, with the following changes and/or confirmations.
Coverage must be affordable for an employee. In determining affordability,
- The amount an employee is considered to be required to pay will be reduced by an employer's contribution for that employee under a cafeteria plan. This reduction will apply only if the employer's contribution (a) cannot be taken as a taxable benefit, (b) can be used to pay for minimum essential coverage, and (c) can be used only to pay for medical care.
- Amounts available to an employee through an HRA count toward an employee’s required contribution if the HRA would have been integrated with an eligible employer-sponsored plan if the employee enrolled in the plan. This assumes that the employee can use the HRA contributions to pay premiums or to pay cost-sharing or benefits not covered by the plan, in addition to premiums.
- Wellness programs with incentives relating to tobacco use can be considered in the amount an employee pays, but other non-tobacco wellness incentives cannot be considered.
The guidance also confirms that Medicaid coverage for needy individuals (not full Medicare) is generally not minimum essential coverage, and an individual can claim a hardship exemption from the individual mandate only for the limited reasons identified by the IRS. Other hardship exemption claims will not be considered.
The final regulations largely follow existing guidance, and individuals should be ready to maintain health coverage or pay a penalty on their tax return.