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HHS Proposed Reg Exempts Some in Medicaid from Mandate Penalties

By Jane Norman, CQ HealthBeat Associate Editor

January 30, 2013 -- People who would qualify for Medicaid under the health law's expansion but live in a state that decides not to expand the program would be exempt from the individual mandate, under a recently proposed Obama administration rule. The move is an acknowledgment that not all states will expand the health program for the poor.

Most individuals will be subject to tax penalties if they don't get health insurance when the law (PL 111-148, PL 111-152) is fully implemented in 2014. In their proposed regulations, the departments of Health and Human Services and Treasury Department laid out how these "shared responsibility payments," as they called them, would be levied.

The proposed HHS rule made it clear that health insurance exchanges should provide "hardship" exemptions for people who won't be able to sign up for Medicaid because they live in one of the states that decides against expanding its rolls to adults earning less than 138 percent of the federal poverty level.

About 20 states and the District of Columbia have so far announced they will expand the state-federal Medicaid program while 10 governors have said that they oppose such a move. Plans are unclear in the other states. A 2012 Supreme Court ruling on law gave states the leeway to decide.

Overall, the proposed rules spell out how the U.S. Department of Health and Human Services (HHS) and the Internal Revenue Service (IRS)  will enforce the individual mandate, which consistently has polled as the health care overhaul's most unpopular feature. The proposed rules and an accompanying fact sheet seem to indicate that there will be no iron fist.

HHS officials in the fact sheet downplayed how many people will run afoul of the mandate, pointing out that the Congressional Budget Office (CBO) has projected that fewer than 2 percent of Americans will have to pay up because they don't have health insurance. CBO said in September that number would be about 6 million in 2016, amounting to $7 billion in payments.

The payment will be made via the federal tax return, beginning in 2015.

The proposed rules will help ensure that the payments only will be made by a "limited group of taxpayers who choose to spend a substantial period of time without coverage despite having ready access to coverage," the fact sheet said.

For example, if it's determined that an individual had minimum essential coverage even for just one day in a month, that would count for the entire month, the proposed rule said. So someone who starts a job on March 27 and is enrolled in employer-sponsored coverage that day will be regarded as having been covered for all of March, officials said.

Similarly, anyone who's exempt for one day of a month will be exempt for an entire month. The tax penalties are calculated on a month-by-month basis, beginning after Dec. 31 of this year.

The Treasury-proposed rule also makes it clear that the IRS can't file a notice of lien or levy on a taxpayer's property for failing to pay. In addition, a taxpayer can't be subject to criminal prosecution or penalty for "failing to pay the assessed shared responsibility payment in a timely manner."

Exemptions Allowed

The law allows nine categories of exemptions: people who can't afford coverage, taxpayers with incomes below the Internal Revenue Service filing threshold, members of Indian tribes, people with hardships, individuals with gaps in coverage of less than three months, those who have religious objections, members of health care sharing ministries, people in prison, and people not living in the country.

But it's the rule that defines what a hardship is. For example, it will be considered a hardship if someone initially doesn't buy health insurance because they can't afford it, but whose income over a year is higher than they anticipated.

In addition, the fact sheet says that the hardship exemption "will be available on a case-by-case basis for individuals who face other unexpected personal or financial circumstances that prevent them from obtaining coverage."

As for the Medicaid exemption, HHS officials said their move will protect low-income people. "We believe that this determination is an appropriate use of the hardship exemption given that the Affordable Care Act anticipates that Medicaid will be available to such individuals," officials said in the rule.

But officials also noted that most of the newly eligible Medicaid population are so poor they likely would not have to pay the law's tax penalties anyway, either because they can't afford insurance coverage or had income below the IRS filing threshold, two other reasons allowed for exemptions.

Officials also asked for comment on whether this hardship exemption should be limited to adults earning less than 100 percent of the federal poverty level. Those individuals are not eligible for federal subsidies that allow purchase of insurance policies in the exchanges, since the law assumed they would be signed up for Medicaid.

Public comments are due on the proposed Treasury rule by May 2 and on the proposed HHS rule by March 18.

Affordability Rule

Separately, Treasury issued a final rule last week dealing with the affordability of health insurance coverage. Under the health care law, subsidies to help pay for insurance are offered when coverage is deemed not affordable.

Despite objections from advocates for low-income children and families, the agency kept a proposal that computes affordability for a family based on the premium costs for just one employee rather than the entire family. Advocates say this means many low income families won't be eligible for subsidies because premiums for families are so much higher than premiums for one person.

"Today's final rule is a serious blow to children who will be left out of the coverage that was promised under the Affordable Care Act," Bruce Lesley, president of the advocacy group First Focus, said in a statement. "The children's community is disappointed by the administration's decision to deny access to coverage for children based on a bogus definition of affordability."

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