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Individuals

What is an exchange?

An exchange, as created under the Affordable Care Act (ACA), is a place where consumers can purchase subsidized health insurance coverage. Each state will have an exchange, operated by either the federal government or by the state. Each state’s exchange must begin offering coverage January 1, 2014 and will begin accepting enrollment October 1, 2013. Consumers applying that qualify for Medicaid will be referred to the state’s Medicaid program.

Who can purchase insurance from the exchange?

Qualified individuals include U.S. citizens and legal immigrants who are not incarcerated, and who do not have access to affordable employer coverage or other public coverage. While anyone can purchase, only certain individuals have access to federal subsidies.

The ACA also provides separate Small Business Health Options Program (SHOP) exchanges for small businesses (fewer than 50 employees) to obtain health coverage for their employees. It is important to note that this coverage is not subsidized.

Must everyone have health insurance?

Yes, this provision is often called the individual mandate. There are a few exceptions, several groups are exempt from the requirement and the penalty, including but not limited to:

  • People who would have to pay more than 8% of their income for health insurance
  • People with incomes below the threshold required for filing taxes
  • Those who qualify for religious exemptions
  • Undocumented immigrants
  • People who are incarcerated
  • Members of Indian tribes
What are the types of plans that will be offered in the exchange?

Every plan participating in the exchange must be certified as a Qualified Health Plan (QHP). To receive the QHP certification, the plan must offer at least a uniform benefits package, called Essential Health Benefits (EHB), be licensed by the state and have a sufficient network. Each exchange will offer four levels of coverage. While the scope of benefits will be the same among the plans, the value of those benefits will vary by actuarial value across the bronze, silver, gold and platinum levels.

  • Bronze: benefits equivalent to 60% of the full actuarial value of plan benefits,
  • Silver: benefits actuarially equivalent to 70% of full value,
  • Gold: benefits actuarially equivalent to 80% of full value, and
  • Platinum: benefits actuarially equivalent to 90% of full value.
Please click here for the EHB summary.
What types of benefits will be offered through EHBs?

Each plan offered on the exchange must consist of at least the following: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health benefits and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness services and chronic disease management, and pediatric services including oral and vision care. Please click here for the EHB summary. It is important to note that all new plans sold in the individual and small group market must contain EHBs.

When can I begin using the exchange?

Open enrollment begins October 1, 2013 with coverage beginning January 1, 2014.

I’m a veteran. What will happen to my health care coverage?

Nothing. Veterans will continue to receive benefits as they do today.

If I am currently insured, will I be required to purchase new health insurance coverage?

All health plans that were in place as of March 23, 2010, are grandfathered in under the law and are considered “qualified coverage” – provided they continue to meet the requirements to be grandfathered.

Will the grandfathered plans have to be updated to meet new requirements?

Yes, but only certain requirements:

  • All enrollees under the age of 19 cannot be discriminated against for pre-existing condition
  • Excessive waiting periods are prohibited
  • No lifetime limits
  • Rescissions are prohibited except for fraud or intentional misrepresentation
  • Restricted annual limits on the dollar value of essential benefits
I have my adult dependent child on my insurance coverage. Will he/she still be able to stay on my health insurance?

Yes, this previously enacted provision will not change. According to the ACA, dependent children can stay on their parent’s insurance until they turn 26.

Can I be denied coverage for a pre-existing condition?

No. Starting in 2014, insurers will no longer be able to turn down adults for coverage due to pre-existing conditions.

What is the penalty for those who opt not to get health insurance coverage?

The penalty for people who decline to purchase health insurance is the greater of two amounts: a specified percentage of income or a specified dollar amount. The percentages of income/dollar amount are phased in over time with annual increases to be determined after 2016.

How much will the policies cost?

The cost will vary by type of plan, location, coverage level, age and tobacco use, number of family members and if applicable, your subsidy. However, costs are expected to increase significantly from today in the first year.

What happens if I cannot afford the premiums through the exchange?

Starting in 2014, individuals and families with incomes between 100% and 400% of the Federal Poverty Level (FPL) are eligible to receive subsidies for premiums, in the form of advanceable tax credits. The premium subsidies will vary with income and are structured so that the premium an individual or family will have to pay will not exceed a specific percentage of income. Individuals may use this subsidy calculator tool to get a better idea of whether or not they qualify for premium tax credits. Please note this tool is simply an estimate to what could be expected in 2014.
For more information regarding health insurance subsidies for individuals, please click here.

Are copayments for preventive care prohibited? What about coinsurance and deductibles?

Yes, all cost sharing mechanisms are prohibited for preventive services.

If I need help with enrolling, the application process or questions about my plan options, other exchange related issues, and who do I contact?

Consumers can continue to get information about their plans via their agent or health insurance professional. In addition, the online exchange website and a 1-800 hotline will be available for individual and small businesses to assist in exchange related issues. There will also be programs that conduct public education activities, distribute information and facilitate enrollment. More information on this topic will be released in the future.

When is open enrollment?

Except for a qualifying event, such as loss of job or family status change, you can only enroll during October 1, 2013 through March 31, 2014. In the subsequent years, open enrollment will be October 15 through December 7.

Can I still use an insurance agent to enroll into a plan on the exchange?

Your agent/broker is also a good way to find more personalized information for your circumstance and yes, you can still use your agent as long as he or she has been approved to sell exchange plans.

Are Flexible Spending Accounts still allowed?

Yes, however, beginning in 2013, you can only deposit up to $2,500 per year into an FSA.

How is prescription coverage handled in the ACA?

Prescription coverage is one of the essential health benefits that all plans containing EHB must have. The type of prescription coverage will depend on the policy option chosen.

What are the new restrictions on lifetime maximums?

The ACA prohibits health insurance issuers from establishing any lifetime limits on the dollar amount of benefits.

What is the practical implication of the Governor’s Habilitative Services letter?

Ohio will require coverage for certain individuals with a diagnosis of autism spectrum disorder by all plans that are mandated to meet Essential Health Benefit (EHB) requirements. Generally, all new plans sold to small employer groups (between 2 and 50 employees) and to individuals, both inside and outside of the exchange, are required to meet EHB requirements. For more information about EHB, click here.

What does the Habilitative Services definition encompass?

Habilitative Services benefits will be determined by the individual plans and must include, but shall not be limited to, Habilitative Services to children (0 to 21) with a medical diagnosis of Autism Spectrum disorder.

What are the Habilitative Services benefits offered for those children (0-21) with a medical diagnosis of Autism Spectrum Disorder?

Habilitative Services must include, but are not limited to:

  1. Out-Patient Physical Habilitative Services including:
    • Speech and Language therapy and/or Occupational therapy, performed by a licensed therapists, 20 visits per year of each service; and
    • Clinical Therapeutic Intervention defined as therapies supported by empirical evidence, which include but are not limited to Applied Behavioral Analysis, provided by or under the supervision of a professional who is licensed, certified, or registered by an appropriate agency of this state to perform the services in accordance with a treatment plan, 20 hours per week;
  2. Outpatient Mental/Behavioral Health Services performed by a licensed Psychologist, Psychiatrist, or Physician to provide consultation, assessment, development and oversight of treatment plans, 30 visits per year total.
What is the difference between habilitative services and rehabilitation services?

Habilitative services are provided in order for a person to attain, maintain or prevent deterioration of a skill or function never learned or acquired due to a disabling condition. Rehabilitation services, on the other hand, are provided to help a person regain, maintain or prevent deterioration of a skill or function that has been acquired but then lost or impaired due to illness, injury, or disabling condition.

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Medicare/ACA

Please note that all Medicare related questions should be directed to the Ohio Senior Health Insurance Information Program within the Department. More information can be found at Medicare.gov.
OSHIIP: 1-800-686-1578

Note: The Marketplace doesn't offer Medicare Supplement Insurance (Medigap) policies or Part D drug plans.

Will the ACA affect my Medicare Supplement plan?

No. However, the law will add cost-sharing requirements to plans C & F after January 1, 2015.

How does the exchange affect my Medicare benefits?

It doesn’t, the exchange will not play a role in Medicare. For more information, please contact OSHIIP.

Will the exchange offer or provide information regarding Medicare Advantage products?

No.

If I have Medicare, do I need to do anything?

No. Medicare isn’t part of the Marketplace, so you don’t need to do anything. If you have Medicare, you’re considered covered.

The Marketplace won’t affect your Medicare choices, and your benefits won’t change. No matter how you get Medicare, whether through Original Medicare or a Medicare Advantage Plan (like an HMO or PPO), you’ll still have the same benefits and security you have now. You won’t have to make any changes.

Can I get a Marketplace plan in addition to Medicare?

No. It’s against the law for someone who knows that you have Medicare to sell you a Marketplace plan. This is true even if you have only Medicare Part A or only Part B.

If you want coverage designed to supplement Medicare, you can visit Medicare.gov to learn more about Medigap policies. You can also visit Medicare.gov to learn more about other Medicare options, like Medicare Advantage Plans.

Can I choose Marketplace coverage instead of Medicare?

Generally, no. As noted above, it’s against the law for someone who knows you have Medicare to sell you a Marketplace plan. But, you can choose Marketplace coverage if you’re eligible for Medicare but haven’t enrolled in it (because you would have to pay a premium, or because you’re not collecting Social Security benefits).

Before making this choice, there are 2 important points to consider:

  1. If you enroll in Medicare after your initial enrollment period ends, you may have to pay a late enrollment penalty for as long as you have Medicare.

  2. Generally, you can enroll in Medicare only during the Medicare general enrollment period (from January 1 — March 31). Your coverage won’t begin until July of that year.

What if I become eligible for Medicare after I join a Marketplace plan?

You can get a Marketplace plan to cover you before your Medicare begins. You can then cancel the Marketplace plan once your Medicare coverage starts.

Once you’re eligible for Medicare, you’ll have an initial enrollment period to sign up. For most people, the initial enrollment period for Medicare starts 3 months before their 65th birthday and ends 3 months after their 65th birthday.

In most cases it’s to your advantage to sign up when you’re first eligible because:

  • Once you’re eligible for Medicare, you won’t be able to get lower costs for a Marketplace plan based on your income.

  • If you enroll in Medicare after your initial enrollment period ends, you may have to pay a late enrollment penalty for as long as you have Medicare.

Will Medicare Advantage plans still be available after the Marketplace starts?

Yes. The Medicare Advantage program isn’t changing as a result of the health care law.

Where can I get more information?

To learn more about Medicare enrollment, coverage, and plan choices, visit Medicare.gov or call 1-800-MEDICARE (1-800-633-4227). TTY users should call 1-877-486-2048.

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Employers

Please note that the below information is based on guidance released from the federal government and can change at any time. Please keep in mind that each case is different and the Department encourages the consultation of a health insurance professional.

As an employer, do I need to inform my employees of health reform changes?

Yes. By October 1, 2013, all new hires and current employees must be given written notice of the following:

  • The existence of the exchange and the services it provides
  • Information regarding the premium tax credit (if applicable)
  • If the employee purchases coverage through the exchange, the employee may lose the employer contribution (if any) to any health benefits plan.
For more information, please read guidance from the U.S. Department of Labor.

Are employers required to provide health insurance coverage to their employees?

No, however, if the business employs more than 50 employees, they are required to provide qualified coverage or must pay a penalty.

How does the ACA define a full-time employee?

Federal law specifies 30 hours per week.

How does Ohio define a full-time employee?

Ohio law specifies 30 hours per week.

>How will seasonal employees be factored in to the employer size determination?

If its workforce exceeds 50 employees for more than 120 days a calendar year, then they will have to provide qualified and affordable coverage or face penalties.
www.irs.gov/pub/irs-drop/n-12-58.pdf

Will employers have to pay a penalty if they do not provide health coverage?

Generally, if an employer has more than 50 employees, does not provide qualified or affordable coverage, and they have employees receiving a tax credit through the exchange, they will be assessed a penalty beginning in 2014.

What is the penalty for an employer?

Generally, if an employer does not offer qualified coverage and at least one employee is eligible for a premium subsidy though the exchange, the employer will be assessed a $2,000 penalty.

If the employer does offer coverage, but at least one full-time employee is eligible for a premium subsidy due do the plans unaffordability, the employer will be assessed a penalty of $3,000 per employee that receives the subsidy.
For more information, please review this flow chart, to learn more information on employer responsibility and penalties.

Why would an employee be eligible for a premium subsidy?

Generally, if an individual's household income is between 100% and 400% of the federal poverty level (FPL) they will be eligible for a premium subsidy. However, if an individual has employer sponsored insurance then:

  • The required premium contribution for the employer’s plan exceeds 9.5% of the employees household income, or
  • The employer offers coverage in which the plan’s share of total allowed costs of benefits provided is less than 60% of such costs.

Is an employer required to purchase insurance through the exchange?

No. While the Small Business Health Program (SHOP) gives employers an option to purchase group insurance through an exchange, employers may continue to purchase insurance through the market outside the exchange.
*Employer choice has been delayed a year.*

Can an employer receive tax credits for providing insurance to their employees?

If you have less than 25 employees, pay average annual wages below $50,000, provide health insurance and pay at least 50% of the premium, you may qualify for a small business tax credit. From 2010 to 2013, eligible employees can receive a tax credit of up to 35% (up to 25% for non-profits) to offset the cost of the insurance.

In 2014, the tax credit goes up to 50% (35% for non-profits) for qualifying businesses, and coverage must be purchased through the SHOP.

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Affordable Care Act Tax Provisions

IRC §7216, Disclosure or Use of Information by Tax Return Preparers

Final Treasury Regulations on rules and consent requirements relating to the disclosure or use of tax return information by tax return preparers became effective Dec. 28, 2012. For additional information about how these apply to services and education related to the Affordable Care Act, please see our questions and answers.

Medical Loss Ratio (MLR)

Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012. For information on the federal tax consequences to an insurance company that pays a MLR rebate and an individual policyholder who receives a MLR rebate, as well as information on the federal tax consequences to employees if a MLR rebate stems from a group health insurance policy, see our frequently asked questions.

Reporting Employer Provided Health Coverage in Form W-2

The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.

The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee's income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits.

Net Investment Income Tax

A new Net Investment Income Tax goes into effect starting in 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. The IRS and the Treasury Department have issued proposed regulations on the Net Investment Income Tax. Comments may be submitted electronically, by mail or hand delivered to the IRS.

Additional Medicare Tax

A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. The IRS and the Department of the Treasury have issued proposed regulations on the Additional Medicare Tax. Comments may be submitted electronically, by mail or hand delivered to the IRS.

Minimum Value

On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Additionally, on April 30, 2013, the Treasury Department and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. The proposed regulations solicit public comments. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment.

Information Reporting on Health Coverage by Employers

On Sept. 5, 2013, the Department of the Treasury and IRS issued proposed regulations (REG-136630-12) on employer health insurance coverage information reporting. The information reporting relates to health insurance coverage that is offered by certain employers, referred to as applicable large employers, and reporting is to be provided by each applicable large employer member. Comments on the proposed regulations may be submitted electronically, by mail or by hand delivery. Additionally, on July 9, 2013, the Department of the Treasury and the IRS announced transition relief for 2014 from this annual information reporting. Notwithstanding this transition relief, once the information reporting rules have been issued, employers and other reporting entities are encouraged to voluntarily comply with the information reporting provisions for 2014.

Information Reporting on Health Coverage by Insurers

On Sept. 5, 2013, the Department of the Treasury and IRS issued proposed regulations (REG-132455-11) on minimum essential coverage information reporting. The information reporting is to be provided by health insurance issuers, certain sponsors of self-insured plans, government agencies and certain other parties that provide health coverage. Comments on the proposed regulations may be submitted electronically, by mail or by hand delivery. Additionally, on July 9, 2013, the Department of the Treasury and the IRS announced transition relief for 2014 from this annual information reporting. Notwithstanding this transition relief, once the information reporting rules have been issued, insurers and other reporting entities are encouraged to voluntarily comply with the information reporting provisions for 2014.

Disclosure of Return Information

On Aug. 13, 2013, the Department of the Treasury and the IRS issued final regulations with rules for disclosure of return information to the Department of Health and Human Services that will be used to carry out eligibility determinations for advance payments of the premium tax credit, Medicaid and other health insurance affordability programs.

Small Business Health Care Tax Credit

This credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. On Aug. 23, 2013, the Department of Treasury and the IRS issued proposed regulations which include information on the transition of eligibility for the credit and requiring the purchase of insurance coverage through an Exchange. Comments may be submitted electronically, by mail or hand delivered to the IRS.

Application of the Affordable Care Act to Health Reimbursement Arrangements, Health Flexible Spending Arrangements and Certain Other Employer Healthcare Arrangements

The Affordable Care Act’s market reforms apply to group health plans. On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. The notice also provides guidance on employee assistance programs or EAPs and on section 125(f)(3), which prohibits the use of pre-tax employee contributions to cafeteria plans to purchase coverage on an Affordable Insurance Exchange (also called a Marketplace). The notice applies for plan years beginning on and after Jan. 1, 2014, but taxpayers may apply the guidance provided in the notice for all prior periods.

DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03, and HHS will shortly issue guidance to reflect that it concurs with Notice 2013-54. On Jan. 24, 2013, DOL and HHS issued FAQs that addressed the application of the Affordable Care Act to HRAs.

Health Flexible Spending Arrangements

Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This standard applies only to purchases made on or after Jan. 1, 2011. A similar rule went into effect on Jan. 1, 2011, for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions. For more information, see news release IR-2010-95, Notice 2010-59, Revenue Ruling 2010-23 and our questions and answers. FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met.

In addition, starting in 2013, there are new rules about the amount that can be contributed to an FSA. Notice 2012-40 provides information about these rules and flexibility for employers applying the new rules and requests comments about other possible administrative changes to the rules on FSA contributions.

Medical Device Excise Tax

On Dec. 5, 2012, the IRS and the Department of the Treasury issued final regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of certain medical devices starting in 2013. On Dec. 5, 2012, the IRS and the Department of the Treasury also issued Notice 2012-77, which provides interim guidance on certain issues related to the medical device excise tax.

Changes to Itemized Deduction for Medical Expenses

Beginning Jan. 1, 2013, you can claim deductions for medical expenses not covered by your health insurance when they reach 10 percent of your adjusted gross income. This change affects your 2013 tax return that you will file in 2014. There is a temporary exemption from Jan. 1, 2013, to Dec. 31, 2016, for individuals age 65 and older and their spouses.

Health Insurance Premium Tax Credit

Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange. The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums. On May 18, 2012, the Department of the Treasury and the IRS issued final regulations which provide guidance for individuals who enroll in qualified health plans through Exchanges and claim the premium tax credit, and for Exchanges that make qualified health plans available to individuals and employers. On Jan. 30, 2013, the Department of the Treasury and IRS released final regulations on the premium tax credit affordability test for related individuals. On April 30, 2013, the Department of the Treasury and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. The proposed regulations solicit public comments. Additionally, Notice 2013-41, issued on June 26, 2013, provides information for determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high risk pool programs. This determination will affect whether the individual is eligible for the premium tax credit. Comments may be submitted electronically, mailed or hand delivered to the IRS. On June 28, 2013, the Department of the Treasury and IRS issued proposed regulations on the new reporting requirements for Exchanges. Comments may be submitted electronically, mailed or hand delivered to the IRS.

Individual Shared Responsibility Provision

Starting in 2014, the Individual Shared Responsibility provision calls for each individual to either have minimum essential coverage for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. On Aug. 27, 2013, the Department of the Treasury and the IRS issued final regulations on the Individual Shared Responsibility provision. Additionally, Notice 2013-42, issued on June 26, 2013, provides transition relief from the shared responsibility provision for employees and their families who are eligible to enroll in certain employer-sponsored health plans with a plan year other than a calendar year if the plan year begins in 2013 and ends in 2014. For additional information on the Individual Shared Responsibility provision, the final regulations and Notice 2013-42, see our questions and answers. Additional information on exemptions and minimum essential coverage is available in final regulations issued by the U.S. Department of Health & Human Services. The open enrollment period to purchase health insurance coverage for 2014 through the Health Insurance Marketplace runs from Oct. 1, 2013, through March 31, 2014.

Health Coverage for Older Children

Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Excise Tax on Indoor Tanning Services

A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn't apply to phototherapy services performed by a licensed medical professional on his or her premises. There's also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee.

Adoption Credit

For tax years 2010 and 2011, the Affordable Care Act raised the maximum adoption credit per child and the credit was refundable. For more information related to the adoption credit for tax years 2010 and 2011, see our news release, tax tip, questions and answers, flyer, Notice 2010-66, Revenue Procedure 2010-31, Revenue Procedure 2010-35 and Revenue Procedure 2011-52.

For tax year 2012, the credit has reverted to being nonrefundable, with a maximum amount (dollar limitation) of $12,650 per child. If you adopted a child in 2012, see Tax Topic 607 for more information.

Transitional Reinsurance Program

The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals.

Medicare Shared Savings Program

The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs.

The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate.

Qualified Therapeutic Discovery Project Program

This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant.

Submission of certification applications began June 21, 2010, and applications had to be postmarked no later than July 21, 2010, to be considered for the program. Applications that were postmarked by July 21, 2010, were reviewed by both the Department of Health and Human Services (HHS) and the IRS. All applicants were notified by letter dated October 29, 2010, advising whether or not the application for certification was approved. For those applications that were approved, the letter also provided the amount of the grant to be awarded or the tax credit the applicant was eligible to take.

The IRS published the names of the applicants whose projects were approved as required by law. Listings of results are available by state.

Group Health Plan Requirements

The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 and REG-140038-10, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts. On March 19, 2013, HHS, DOL and IRS issued proposed regulations on the ninety-day waiting period limitation. The proposed regulations solicit public comments to be submitted to DOL.

Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy.

Annual Fee on Health Insurance Providers

The Affordable Care Act created an annual fee on certain health insurance providers beginning in 2014. On March 1, 2013, the Treasury Department and IRS issued proposed regulations on this provision. Comments may be submitted electronically, by mail or hand delivered to the IRS.

Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers

The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Revenue Procedure 2012-11, issued in conjunction with temporary regulations and a notice of proposed rulemaking, sets out the procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under 501(c)(29).

An overview of the CO-OP program is available on the HHS website.

Medicare Part D Coverage Gap “donut hole” Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS.

Additional Requirements for Tax-Exempt Hospitals

The Affordable Care Act added new requirements for charitable hospitals. (See Notice 2010-39 and Notice 2011-52.) On June 22, 2012, the IRS issued proposed regulations which provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. On April 3, 2013, the IRS issued proposed regulations on the requirement that charitable hospitals conduct community health needs assessments (CHNAs) and adopt implementation strategies at least once every three years. The proposed regulations also discuss the related excise tax and reporting requirements for charitable hospitals and the consequences for failure to satisfy the requirements. On Aug. 14, 2013, the IRS issued temporary regulations and proposed regulations. The temporary regulations provide information on which form to use when making an excise tax payment for failure to meet the community health needs assessment requirements and the due date for filing the form. The proposed regulations solicit public comments.

Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers

The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On Aug. 15, 2011, the IRS issued temporary regulations and a notice of proposed rulemaking on the branded prescription drug fee. The temporary regulations describe the rules related to the fee, including how it is computed and how it is paid. On Aug. 5, 2013, the IRS issued Notice 2013-51, which provides additional guidance on the branded prescription drug fee for the 2014 fee year.

Modification of Section 833 Treatment of Certain Health Organizations

The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. IRS Notice 2010-79 provides transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio (MLR) for purposes of section 833, the consequences of nonapplication and changes in accounting method. Notice 2011-04 provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums. Notice 2012-37 extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after Dec. 31, 2012.

On May 10, 2013, the IRS issued proposed regulations that describe how the MLR for purposes of section 833 is computed. Comments and requests for a public hearing must be received by Aug. 12, 2013.

Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers (amended section 162(m))

The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. On April 1, 2013, the Treasury Department and IRS issued proposed regulations on this provision. Comments may be submitted electronically, by mail, or hand delivered to the IRS.

Employer Shared Responsibility Payment

The Affordable Care Act establishes that certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Dec. 28, 2012, the Department of the Treasury and the IRS issued proposed regulations on the Employer Shared Responsibility provisions. Comments may be submitted by mail or hand-delivered to the IRS. For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers. Other information, much of which has been incorporated into the proposed regulations, may be found in news releases IR-2011-92 and IR-2011-50 and Notices 2011-73, 2011-36, 2012-17 and 2012-58. On July 9, 2013, the Department of the Treasury and the IRS announced transition relief from the Employer Shared Responsibility provisions for 2014.

Patient-Centered Outcomes Research Institute Fee

The Affordable Care Act imposes the Patient-Centered Outcomes Research Institute (PCORI). Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will assist patients, clinicians, purchasers and policy-makers in making informed health decisions by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans.

The IRS and the Department of the Treasury have issued final regulations on this fee. Additional information on the fee is available on the PCORI page and in our questions and answers and chart summary. Form 720, Quarterly Federal Excise Tax Return, was revised to provide for the reporting and payment of the PCORI fee.

Retiree Drug Subsidies

Under § 139A of the Internal Revenue Code, certain special subsidy payments for retiree drug coverage made under the Social Security Act are not included in the gross income of plan sponsors. Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans. For taxable years beginning on or after Jan. 1, 2013, new statutory rules affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies.

Dependents for Premium Tax Credits

Can an adult child living with his parents be claimed as a dependent?

Yes, if the tests for dependency are met. If a child is too old to be considered a “qualifying child” under IRS rules, he or she may still be a dependent (whether or not he lives with his parents) if he earns less than $3,900 per year (2013 figure) and if his parents pay for more than half of his food, housing and other necessary support.

If a child lives with one parent (custodial parent) but is claimed by the other (non-custodial parent), who may claim the premium tax credit for the child?

Typically, a child is required to live with the taxpayer for more than half the year in order to be that person’s qualifying child. However, there is an exception that allows the custodial parent to release their claim on the child’s exemption to the non-custodial parent. If the non-custodial parent gets that release and claims the child on his or her tax return, the child will be in that taxpayer’s household when calculating the premium tax credit, even though the child doesn’t live there.

Other than children, who else might qualify as a dependent on a tax return?

Other relatives – or even unrelated people – that the taxpayer supports may be claimed as dependents if they meet the IRS test as a qualifying relative. To be a qualifying relative, the person must be a citizen or resident of the U.S., Canada or Mexico. (Note that eligibility for premium tax credits is limited to U.S. citizens and lawful residents despite the broader tax dependency rule.) In addition, the person must be financially dependent on the taxpayer; he can’t have income greater than $3,900 (2013 figure) and the taxpayer must pay more than half of his support. A person who is related generally isn’t required to live with the taxpayer to be his dependent, but an unrelated person must live with the taxpayer all year.

What are the rules for claiming children on a tax return?

The child must be a citizen or resident of the U.S., Canada or Mexico. (Note that eligibility for premium tax credits is limited to U.S. citizens and lawful residents despite the broader tax dependency rule.) The child must also live with the taxpayer for at least half of the year and be under the age of 19 by the end of the tax year (or under age 24 if a full-time student or any age if disabled). The child must have a relationship with the taxpayer; a “child” can be the taxpayer’s child, grandchild, younger sibling, or younger niece or nephew. Finally, the child must not be paying more than half of his or her own support. Some children who don’t meet this test (e.g., an adult child) may qualify as another type of dependent.

Household size, which is one of the factors in calculating premium tax credits, is determined by the taxpayers and dependents on the tax return. Who can be claimed as a dependent?

Children, siblings, parents, grandchildren, other family members and even people who are unrelated to the taxpayer can be claimed as dependents if they meet the criteria to be either a qualifying child or a qualifying relative under IRS rules. All dependents on the tax return will be included as household members when premium tax credits are calculated.

Tax Filing Status and Eligibility for Premium Tax Credits

My client didn’t file his taxes in 2012. Is he still eligible for a premium tax credit for 2014?

Yes. There is a requirement that a person who receives a premium tax credit file a tax return for the year in which he receives the credit, but there is no requirement to file a return in previous years. So a client who receives a premium tax credit in 2014 must file a 2014 tax return in the spring of 2015.

Our client is married but has left her husband due to domestic violence. She doesn’t want to file a tax return with him. Can she qualify for premium tax credits?

She may meet the requirements to file as head of household if she pays more than half the expense of keeping up her home, has a qualifying dependent, and will live apart from her husband for the last six months of the tax year in which the premium tax credit is used. If a person doesn’t qualify as head of household, she should consider legal separation or divorce, which would allow her to file as single. If separation or divorce are finalized by the last day of the tax year, the person is considered single for the entire year. Some people may have no choice but to file separately. Recognizing the difficulties some taxpayers encounter that leave no choice but filing separately from their spouse, the IRS has indicated that it may create some special exemptions from this requirement, specifically mentioning survivors of domestic violence. This guidance has not yet been issued.

Under what circumstances can a married person decide not to file taxes with a spouse and still claim the premium tax credit?

A person who is married but does not wish to file or cannot file taxes with a spouse may qualify to file under a different filing status, which would also allow them to claim premium tax credits. First, if a person has been granted formal legal separation through a court, he or she qualifies to file as a single individual. Second, a person may qualify to file as head of household if a qualifying person lives with them for more than half the year (usually a dependent child but some other dependents qualify as well), the taxpayer pays more than half the cost of keeping up the home, and if the spouses have been living apart for the last six months of the tax year. Since eligibility for premium tax credits is based on a projection of the income and household for the coming year, it can be difficult for someone to know in advance if they will be separated from a spouse in the final six months of the following year but if spouses have been consistently separated, yet have not divorced, the head of household filing status may help one or both spouses claim the premium tax credit.

What happens if I get premium tax credits, but then for personal reasons need to file as married filing separately? Do I need to return the full premium tax credit?

If a married person intends to file jointly and accepts advanced premium tax credits but instead files as married filing separately, a portion of the premium tax credit will need to be paid back. The repayment is subject to the same income-based limits that apply when a family receives excess advanced premium tax credit for other reasons. (Click here for a chart which shows repayment limits by income range.)

What are the different ways people file their taxes and how does that affect a person’s eligibility for premium tax credits?

Every taxpayer chooses a “filing status” on his or her tax return. Single is someone who is not married or is legally separated from their spouse.

  • Married filing jointly is a couple who are legally married and wish to file their taxes together.
  • A qualifying widow/widower is a person with a dependent child whose spouse has died in the last two years.
  • Head of household is someone who has a dependent child living with them, pays more than half the cost of keeping up the home, and is either not married or is married but lived apart from their spouse for the last 6 months of the tax year.
  • Married filing separately is the tax status used for a legally married couple that chooses to file their taxes separately.

A person cannot claim a premium tax credit for 2014 if he or she plans to use the filing status married filing separately in that year. This means that a married person will need to file jointly with his or her spouse or qualify as head of household in order to claim a premium tax credit.

Modified Adjusted Gross Income (MAGI)

You said child support received is not counted in MAGI and alimony paid is deducted in computing AGI. Could you go over that again?

Child support payments received by a household for the support of a child in the household are not counted in determining the family’s gross income for tax purposes. The parent paying the child support likely already paid taxes on the income being paid as child support. Alimony is treated differently. The person paying the alimony gets to deduct it from his or her gross income to determine AGI and the person receiving the alimony payments counts it in his or her gross income for tax purposes.

Does MAGI apply in all state Medicaid programs, even states that are not expanding Medicaid?

Yes, MAGI applies in all states. However, it is only used to determine income for certain groups: parents and caretaker relatives, children, pregnant women, and the newly eligible adults who are eligible under the Medicaid expansion. It is not used in determining eligibility for seniors (people 65 and over) and people with disabilities who are receiving Medicaid based on disability.

How is gross income adjusted to result in Adjusted Gross Income?

The deductions subtracted from gross income to get to Adjusted Gross Income (AGI) include contributions to a health savings account, job-related moving expenses, student loan interest, IRA contributions, alimony paid, and in some cases tuition and fees, although for many families the education tax credit is more valuable than the deduction for tuition and fees. (See lines 23 to 35 on the IRS-1040 form for the complete list of deductions.)

What types of income are not counted as part of gross income?

The most common types of income not counted as part of gross income include cash assistance benefits such as SSI (Supplemental Security Income) or TANF (Temporary Assistance for Needy Families), child support, gifts, inheritances, some scholarship income for tuition, most Social Security benefits, and salary deferrals (i.e., contributions to cafeteria/flexible spending plans and “401(k)” retirement plans).

What types of income does Modified Adjusted Gross Income count?

The best place to start is “gross income.” Next, adjustments to gross income result in Adjusted Gross Income (AGI). Then, three modifications are made to AGI to get to Modified Adjusted Gross Income (MAGI). (See the first MAGI question for the three adjustments.) Under tax rules, gross income can be in the form of money, goods, property, and services, and includes any income that is not specifically exempted under tax rules. Common types of income that are counted are wages and tips, unemployment benefits, pensions and annuities, income from a business, alimony received, dividends and taxable interest, and rents and royalties received. And, as mentioned in response to another MAGI question, gross income may include a portion of Social Security benefits for people who have other income. We’ll talk about what types of income are not counted tomorrow.

If a dependent child receives Social Security benefits, are those counted as part of Modified Adjusted Gross Income?

It depends on whether the child is required to file a tax return. A household’s Modified Adjusted Gross Income (MAGI) is the sum of the MAGI of the taxpayer, the spouse filing jointly, and dependents who are required to file a return. Dependents who have income above a certain amount ($5,950 in earned income and $950 in unearned income in 2013) must file their own tax return even though someone else claims them as a dependent. (Social Security benefits don’t count toward these thresholds.) If the dependent with Social Security benefits is not required to file a return, any Social Security benefits he or she receives are not counted.

How are Social Security benefits counted in Modified Adjusted Gross Income (MAGI)?

Social Security benefits received by a tax filer and his or her spouse filing jointly are counted when determining a household’s MAGI. For people who have other income, some Social Security benefits may be included in their AGI. One of the modifications to AGI to get to MAGI adds in any Social Security benefits that have not already been included in AGI. We’ll discuss Social Security benefits received by dependents in a future question.

What income counts when determining eligibility for premium tax credits and Medicaid?

Eligibility for premium tax credits (and for the Children’s Health Insurance Program (CHIP) and most people in Medicaid) is based on “Modified Adjusted Gross Income,” (MAGI). MAGI is adjusted gross income (AGI), determined in the same way as for personal income taxes, plus three types of income that AGI omits: excluded foreign income, tax-exempt interest, and the non-taxable portion of Social Security benefits.