Friday, August 12, 2011

More Washington Mandates Released

This morning the Administration released three new proposed rules that would implement significant portions of Obamacare: rules regarding Medicaid eligibility determinations, Exchange eligibility determinations, and premium subsidiesThese three rules comprise 409 new pages of Washington mandates on individuals, employers, and states.  The word “require” appears in the three rules a total of 435 times (208 in the Medicaid rule, 146 in the Exchange rule, and 81 in the premium subsidy rule).

Several major questions surrounded these rules prior to their release, and a preliminary review of the rules provides answers to a couple of key questions.  First, page 37 of the Medicaid eligibility rule confirms that – as previously reported by the Associated Pressthe Administration is using a statutory definition of income that will result in millions of middle-class retirees obtaining “free” taxpayer-funded Medicaid benefits, because the new definition of income being used under Obamacare disregards Social Security benefits as income.  The rule also notes that this provision will raise state Medicaid costs, and the unfunded mandates that Obamacare places on states:

Under this regulation as proposed, we also are applying the section 36B rules and definitions of Social Security benefits under title II of the Act.  Such benefits count as income for the purpose of determining eligibility for Medicaid under pre-Affordable Care Act treatment of income, but certain amounts of Social Security benefits are not counted as income under the 36B definition of MAGI.  The section 36B treatment of Social Security benefits may increase State Medicaid costs, as some individuals who receive Social Security benefits would gain Medicaid eligibility using the 36B definitions.  The Administration is concerned about this unintended consequence and is exploring options to address it, including a modification of the section 36B treatment of Social Security benefits through regulation.  We seek comment on this issue, including how any modification of the proposed regulation may affect eligibility for premium tax credits for enrollment in a qualified health plan through the Exchange and how any potential gaps in coverage that may be created by such modification could be minimized.

Second, pages 16-17 of the premium subsidy regulations confirm that the “affordability” test under the employer “firewall” applies only to individual and not to family coverage.  In other words, if an employee is offered coverage by his employer, and the coverage for that worker alone costs less than 9.5% of his income, he (and his family) will be ineligible for Exchange subsidies, regardless of whether family coverage costs more than 9.5% of his household income.  (See more information here.)  The rules do indicate however that the Administration’s forthcoming regulations implementing the individual mandate would exempt a family from the mandate’s penalties under such a scenario – families wouldn’t have affordable coverage, and they wouldn’t qualify for insurance subsidies, but they wouldn’t be penalized for not obtaining coverage either. (How is that any different from the status quo now?)  The relevant section of the regulations is below:

The statutory language specifies that for both employees and others (such as spouses or dependents) who are eligible to enroll in employer-sponsored coverage by reason of their relationship to an employee (related individuals), the coverage is unaffordable if the required contribution for “self-only” coverage (as opposed to family coverage or other coverage applicable to multiple individuals) exceeds 9.5 percent of household income.  See Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 111th Congress, JCS-2-11 (March 2011) at 265 (stating that, for purposes of the premium tax credit provisions of the Act, “[u]naffordable is defined as coverage with a premium required to be paid by the employee that is more than 9.5 percent of the employee’s household income, based on the self-only coverage”).

Consistent with these statutory provisions, the proposed regulations provide that an employer-sponsored plan also is affordable for a related individual for purposes of section 36B if the employee’s required contribution for self-only coverage under the plan does not exceed 9.5 percent of the applicable taxpayer’s household income for the taxable year, even if the employee’s required contribution for the family coverage does exceed 9.5 percent of the applicable taxpayer’s household income for the year.

Although the affordability test for related individuals for purposes of the premium tax credit is based on the cost of self-only coverage, future proposed regulations under section 5000A are expected to provide that the affordability test for purposes of applying the individual responsibility requirement to related individuals is based on the employee’s required contribution for employer-sponsored family coverage.  Section 5000A addresses affordability for employees in section 5000A(e)(1)(B) and, separately, for related individuals in section 5000A(e)(1)(C).