Minimum Essential Coverage and Other Rules Regarding the Shared Responsibility Payment for Individuals, 4302-4308 [2014-01439]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 79, Number 17 (Monday, January 27, 2014)]
[Proposed Rules]
[Pages 4302-4308]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01439]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-141036-13]
RIN 1545-BL91


Minimum Essential Coverage and Other Rules Regarding the Shared 
Responsibility Payment for Individuals

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
requirement to maintain minimum essential coverage enacted by the 
Patient Protection and Affordable Care Act and the Health Care and 
Education Reconciliation Act of 2010, as amended by the TRICARE 
Affirmation Act and Public Law 111-173. These proposed regulations 
affect individual taxpayers who may be liable for the shared 
responsibility payment for not maintaining minimum essential coverage. 
This document also provides notice of a public hearing on these 
proposed regulations.

DATES: Comments must be received by April 28, 2014. Outlines of topics 
to be discussed at the public hearing scheduled for May 21, 2014, at 10 
a.m., must be received by April 28, 2014.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-141036-13), room 
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
141036-13), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at www.regulations.gov (IRS REG-141036-13). The 
public hearing will be held in the IRS Auditorium, Internal Revenue 
Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Sue-Jean Kim or John B. Lovelace, (202)

[[Page 4303]]

317-7006; concerning the submission of comments, the public hearing, 
and to be placed on the building access list to attend the public 
hearing, Oluwafunmilayo Taylor, (202) 317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in Sec.  1.5000A-3(h)(3) 
and Sec.  1.5000A-4(a)(1) of this notice of proposed rulemaking has 
been reviewed and approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) 
under control number 1545-0074 in conjunction with the final 
regulations under section 5000A (TD 9632). The information is necessary 
to determine whether the individual shared responsibility provision 
applies to a taxpayer and, if it applies, the amount of the payment. 
Comments on the collection of information should be sent to the Office 
of Management and Budget, Attn: Desk Officer for the Department of the 
Treasury, Office of Information and Regulatory Affairs, Washington, DC 
20503, with copies to the Internal Revenue Service, Attn: IRS Reports 
Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224.
    Comments on the collection of information should be received by 
March 28, 2014.

Background

    The Patient Protection and Affordable Care Act, Public Law 111-148 
(124 Stat. 119 (2010)), and the Health Care and Education 
Reconciliation Act of 2010, Public Law 111-152 (124 Stat. 1029 (2010)) 
(collectively, the Affordable Care Act), added section 5000A to the 
Internal Revenue Code. Section 5000A was subsequently amended by the 
TRICARE Affirmation Act of 2010, Public Law 111-159 (124 Stat. 1123) 
and Public Law 111-173 (124 Stat. 1215). Section 5000A provides that, 
for months beginning after December 31, 2013, a nonexempt individual 
must maintain minimum essential coverage or make a shared 
responsibility payment.
    Final regulations under section 5000A (TD 9632) were published on 
August 30, 2013 (78 FR 53646). The preamble to the final regulations 
indicates that subsequent proposed regulations will provide that 
coverage under certain government-sponsored programs is not government-
sponsored minimum essential coverage. The preamble to the final 
regulations also describes rules to be included in subsequent 
regulations for determining, for purposes of the lack of affordable 
coverage exemption, the required contribution for individuals eligible 
to enroll in an eligible employer-sponsored plan that provides employer 
contributions to health reimbursement arrangements (HRAs) or wellness 
program incentives. These proposed regulations address these issues, 
consistent with the rules contemplated in the preamble to the final 
regulations. In addition, these proposed regulations provide or clarify 
rules under section 5000A addressing the definition of excepted 
benefits, hardship exemptions that may be claimed on a Federal income 
tax return, and the computation of the monthly penalty amount.

Minimum Essential Coverage

    Section 5000A(f)(1) enumerates the types of health care coverage 
that qualify as minimum essential coverage. They include, among others, 
coverage under specified government-sponsored programs and health 
benefits coverage that the Secretary of Health and Human Services 
(HHS), in coordination with the Secretary of the Treasury, recognizes 
as minimum essential coverage. Under section 5000A(f)(1)(A), specified 
government-sponsored programs include, among other things, the Medicaid 
program under title XIX of the Social Security Act and medical coverage 
under chapter 55 of title 10, United States Code, including the TRICARE 
program.
    Section 1.5000A-2(b)(1)(ii) of the final regulations provides that 
government-sponsored programs that are minimum essential coverage 
include the Medicaid program under Title XIX of the Social Security Act 
(42 U.S.C. 1396 and following sections) other than certain Medicaid 
coverage that may provide limited benefits: (1) Optional coverage of 
family planning services under section 1902(a)(10)(A)(ii)(XXI) of the 
Social Security Act (42 U.S.C. 1396a(a)(10)(A)(ii)(XXI)); (2) optional 
coverage of tuberculosis-related services under section 
1902(a)(10)(A)(ii)(XII) of the Social Security Act (42 U.S.C. 
1396a(a)(10)(A)(ii)(XI)); (3) coverage of pregnancy-related services 
under section 1902(a)(10)(A)(ii)(IX) of the Social Security Act (42 
U.S.C. 1396a(a)(10)(A)(ii)(IX)); and (4) coverage limited to the 
treatment of emergency medical conditions in accordance with 8 U.S.C. 
1611(b)(1)(A), as authorized by section 1903(v) of the Social Security 
Act (42 U.S.C. 1396b(v)).

Excepted Benefits

    Under section 5000A(f)(3) and Sec.  1.5000A-2(g) of the final 
regulations, minimum essential coverage does not include any health 
insurance coverage that consists solely of excepted benefits described 
in section 2791(c)(1), (c)(2), (c)(3), or (c)(4) of the Public Health 
Service Act (42 U.S.C. 300gg-91(c)), or regulations issued under these 
provisions (45 CFR 148.220) (excepted benefits regulations). In 
general, excepted benefits are benefits that are limited in scope or 
are conditional. Under 2791(b)(1) of the Public Health Service Act (42 
U.S.C. 300gg-91(b)(1)), health insurance coverage means benefits 
consisting of medical care (provided directly, through insurance or 
reimbursement, or otherwise and including items and services paid for 
as medical care) under any hospital or medical service policy or 
certificate, hospital or medical service plan contract, or health 
maintenance organization contract offered by a health insurance issuer.

Lack of Affordable Coverage Exemption

    Section 5000A(e)(1) and Sec.  1.5000A-3(e)(1) of the final 
regulations provide that an individual is exempt for a month when the 
individual cannot afford minimum essential coverage. For this purpose, 
an individual cannot afford minimum essential coverage if the 
individual's required contribution (determined on an annual basis) for 
minimum essential coverage exceeds a percentage (8 percent for 2014) of 
the individual's household income for the most recent taxable year for 
which the Secretary of HHS, in consultation with the Secretary of the 
Treasury, determines information is available.
    For individuals ineligible for coverage under an eligible employer-
sponsored plan, the required contribution is the annual premium for the 
applicable plan reduced by the premium tax credit allowable under 
section 36B for the taxable year (determined as if the individual 
enrolled in a plan through an Exchange for the entire taxable year). 
The applicable plan is the lowest cost bronze plan available in the 
Exchange serving the rating area where the individual resides that 
would cover all members of the individual's nonexempt family taking 
into account the rating factors that an Exchange would use to determine 
the cost of coverage. If the Exchange serving the rating area where the 
individual resides does not offer a single bronze plan that would cover 
all members of the individual's nonexempt family, the premium for the 
applicable plan is the sum of the premiums for the lowest cost bronze 
plans available in the Exchange that provide coverage for all members 
of the nonexempt family.

[[Page 4304]]

Hardship Exemptions

    Section 5000A(e)(5) and Sec.  1.5000A-3(h)(1) of the final 
regulations provide that, in general, an individual is exempt for a 
month that includes a day on which the individual has in effect a 
hardship exemption certification. A hardship exemption certification is 
issued by an Exchange under section 1311(d)(4)(H) of the Affordable 
Care Act (42 U.S.C. 18031(d)(4)(H)) certifying that the individual has 
suffered a hardship (as that term is defined in 45 CFR 155.605(g)) with 
respect to the individual's ability to obtain coverage under a 
qualified health plan. Section 1.5000A-3(h)(3) of the final regulations 
provides that a taxpayer who meets the requirements of 45 CFR 
155.605(g)(3) or 45 CFR 155.605(g)(5) may claim a hardship exemption 
for a calendar year on a Federal income tax return.
    Pursuant to the authority under 45 CFR 155.605(g), the Secretary of 
HHS has established an additional hardship exemption that applies to 
individuals enrolling in a qualified health plan through an Exchange 
prior to the close of the initial open enrollment period. Specifically, 
an individual may claim a hardship exemption for the months prior to 
the effective date of the individual's coverage on a Federal income tax 
return for 2014 without the need to request an exemption from the 
Exchange. See HHS Centers for Medicare and Medicaid Services, Shared 
Responsibility Provision Question and Answer (Oct. 28, 2013).

Monthly Penalty Amount

    Under section 5000A(c)(1), the amount of the shared responsibility 
payment imposed on any taxpayer for any taxable year is equal to the 
lesser of (A) the sum of monthly penalty amounts for months when one or 
more failures to maintain minimum essential coverage occurred, or (B) 
an amount equal to the national average premium for qualified health 
plans that satisfy requirements enumerated in section 5000A(c).
    Under section 5000A(c)(2), the monthly penalty amount, for any 
month, is \1/12\ of the greater of (A) the flat dollar amount, or (B) a 
specified percentage of the taxpayer's household income over the 
taxpayer's applicable return filing threshold (as defined in section 
6012(a)(1)).
    The flat dollar amount is the lesser of (A) the sum of the defined 
applicable dollar amounts for all individuals in the shared 
responsibility family who did not have minimum essential coverage in a 
particular month, or (B) 300 percent of the applicable dollar amount. 
Under section 5000A(c)(3), the applicable dollar amount is $95 in 2014, 
$325 in 2015, and $695 in 2016. After 2016, the applicable dollar 
amount will be indexed by a cost-of-living adjustment.
    The specified percentage is 1.0 percent for taxable years beginning 
in 2014, 2.0 percent for taxable years beginning in 2015, and 2.5 
percent for taxable years beginning after 2015.
    The final regulations incorporate these provisions.

Explanation of Provisions

I. Minimum Essential Coverage

A. Medicaid-related programs
1. Coverage for the Medically Needy
    The Social Security Act provides states with flexibility to extend 
Medicaid eligibility to individuals with high medical expenses who 
would be eligible for Medicaid but for their income level (medically 
needy individuals). See section 1902(a)(10)(C) of the Social Security 
Act (42 U.S.C. 1396a(a)(10)(C)) and 42 CFR 435.300 and following 
sections. In general, individuals whose income is in excess of the 
maximum allowed for Medicaid eligibility but who are otherwise eligible 
for Medicaid may ``spend down'' their income, based on incurred medical 
expenses, and thereby become eligible for the benefits provided for 
medically needy individuals in the state. States providing coverage to 
medically needy individuals must establish a ``budget period'' lasting 
from one to six months. Eligibility for coverage as a medically needy 
individual, which must be determined each budget period, is provided 
only after an individual incurs sufficient medical expenses to spend 
down to the qualifying income level. Thus, depending on an individual's 
medical needs and the options exercised by the state program, 
eligibility may be assessed as frequently as every month, and an 
individual may move in and out of coverage for medically needy 
individuals multiple times in a year. States are permitted, and some 
states have adopted the option, to offer benefits to the medically 
needy that are more limited than the benefits generally provided to 
Medicaid beneficiaries.
    Because the benefits provided to medically needy individuals are 
not required to be comprehensive, the coverage is analogous to coverage 
consisting of excepted benefits that is not minimum essential coverage 
under section 5000A(f)(3). Other types of coverage under government-
sponsored programs that potentially provide limited benefits are not 
minimum essential coverage under the final regulations (for example, 
the optional coverage of family planning services under section 
1902(a)(10)(A)(ii)(XXI) of the Social Security Act (42 U.S.C. 
1396a(a)(10)(A)(ii)(XXI)), and the optional coverage of tuberculosis-
related services under section 1902(a)(10)(A)(ii)(XII) of the Social 
Security Act (42 U.S.C. 1396a(a)(10)(A)(ii)(XII)). Accordingly, the 
proposed regulations provide that coverage for medically needy 
individuals generally is not government-sponsored minimum essential 
coverage. To the extent such coverage in a particular state is 
comprehensive coverage, such coverage may be recognized as minimum 
essential coverage by the Secretary of HHS, in coordination with the 
Secretary of the Treasury, under section 5000A(f)(1)(E).
    Because individuals receiving medically needy coverage may not know 
at the time of open enrollment for the 2014 plan year that coverage 
under the program is not minimum essential coverage, Notice 2014-10 
(available at www.irs.gov), (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter), released concurrently with these proposed regulations, 
provides that a taxpayer is not liable for the shared responsibility 
payment for a month in 2014 with respect to individuals in the 
taxpayer's shared responsibility family who are enrolled in medically 
needy coverage.
2. Section 1115 Demonstration Projects
    Section 1115 of the Social Security Act (42 U.S.C. 1315) authorizes 
the Secretary of HHS to approve experimental, pilot, or demonstration 
projects that promote the objectives of the Medicaid program (``Section 
1115 demonstration projects''). Some Section 1115 demonstration 
projects involve waivers of Medicaid requirements that affect 
individuals eligible under the approved Medicaid state plan (for 
instance, waivers to permit changes in manners of delivering Medicaid 
services), but do not change the basic requirement to provide 
comprehensive Medicaid coverage. Other Section 1115 demonstration 
projects, authorized under section 1115(a)(2) of the Social Security 
Act (42 U.S.C. 1315(a)(2)), allow a state to extend benefits to 
additional populations (expansion populations). Because the expansion 
populations are not described in approved Medicaid state plans, the 
coverage authorized under those Section 1115 demonstration projects is 
not required to be comprehensive and may be limited. Accordingly, the 
proposed regulations provide that coverage under Section 1115 
demonstration projects authorized under section 1115(a)(2) of the 
Social Security Act generally is not

[[Page 4305]]

government-sponsored minimum essential coverage. However, comprehensive 
coverage for expansion populations under certain Section 1115 
demonstration programs may be recognized as minimum essential coverage 
by the Secretary of HHS, in coordination with the Secretary of the 
Treasury, under section 5000A(f)(1)(E).
    The Treasury Department and IRS understand that individuals 
receiving benefits as part of an expansion population under a 
demonstration project authorized under section 1115(a)(2) may not know 
at open enrollment for the 2014 plan year that the coverage they 
receive under a Section 1115 demonstration project is not minimum 
essential coverage. Accordingly, Notice 2014-10 (available at 
www.irs.gov), (see Sec.  601.601(d)(2)(ii)(b) of this chapter), 
released concurrently with these proposed regulations, provides that a 
taxpayer will not be liable for the shared responsibility payment for a 
month in 2014 with respect to individuals in the taxpayer's shared 
responsibility family receiving benefits as part of an expansion 
population authorized under section 1115(a)(2).
B. Limited-Benefit Coverage Under Chapter 55 of Title 10, U.S.C.
    Similar to Medicaid programs that provide a limited scope of 
benefits, two types of coverage provided under chapter 55 of Title 10, 
U.S.C., do not provide a scope of benefits comparable to the full 
TRICARE program under the same chapter. Under sections 1079(a), 
1086(c)(1), and 1086(d)(1) of Title 10, U.S.C., the first type of 
limited-benefit coverage is provided for certain individuals who are 
excluded from TRICARE coverage for health care services from private 
sector providers and only eligible for space available care in a 
facility of the uniformed services (space available care). There is no 
guarantee of care and any care received is subject to the availability 
of space and facilities, as well as the capabilities of the medical and 
dental staff. Coverage potentially available to an affected individual 
may not be accessible if there is no space available at the facility 
where the individual seeks care or treatment. These affected 
individuals are not entitled to comprehensive health care coverage 
under chapter 55 of Title 10, U.S.C., and the Department of Defense has 
no statutory authority to pay claims for any outside care provided to 
these individuals.
    Under sections 1074a and 1074b of Title 10, U.S.C., the second type 
of limited-benefit coverage is provided for certain individuals who are 
not on active duty and are entitled to episodic care for an injury, 
illness, or disease incurred or aggravated in the line of duty (line-
of-duty care). Line-of-duty care is limited to care appropriate for 
treating the covered injury, illness, or disease. This type of limited-
benefit coverage is similar to coverage consisting of excepted 
benefits, including workers' compensation, that is not minimum 
essential coverage under section 5000A(f)(3).
    Neither of these types of limited-benefit coverage offers 
beneficiaries coverage for comprehensive medical care. Accordingly, the 
proposed regulations provide that Military Health System eligibility 
limited only to space available care and line-of-duty care are not 
government-sponsored programs providing minimum essential coverage. 
Because individuals enrolled in space available care or line-of-duty 
care may not know at open enrollment for the 2014 plan year that space 
available care and line-of-duty care are not minimum essential 
coverage, Notice 2014-10 (available at www.irs.gov), (see Sec.  
601.601(d)(2)(ii)(b) of this chapter), released concurrently with these 
proposed regulations, provides that a taxpayer is not liable for the 
shared responsibility payment for a month in 2014 with respect to 
individuals in the taxpayer's shared responsibility family who are 
enrolled in either space available care or line-of-duty care.
C. Excepted Benefits
    Section 5000A(f)(3) and Sec.  1.5000A-2(g) of the final regulations 
provide that minimum essential coverage does not include health 
insurance coverage that consists solely of excepted benefits. In the 
rulemaking process under section 5000A, the Treasury Department and the 
IRS have provided that minimum essential coverage does not include 
plans or programs that do not provide a comprehensive scope of 
benefits. See, for example, Sec.  1.5000A-2(b)(1)(ii)(A) describing the 
Medicaid program for family planning services and Sec.  1.5000A-
2(b)(1)(v) excluding from the definition of minimum essential coverage 
medical care for veterans that does not provide comprehensive health 
care benefits. Consistent with this treatment, the proposed regulations 
clarify that minimum essential coverage excludes any coverage, whether 
insurance or otherwise, that consists solely of excepted benefits.

II. Exemption for Individuals Who Cannot Afford Coverage

A. Health Reimbursement Arrangements
    The preamble to the final regulations provides that guidance on how 
employer contributions to HRAs are counted in determining an employee's 
or a related individual's required contribution will be consistent with 
final rulemaking under section 36B. The regulations proposed under 
section 36B addressing the treatment of employer contributions to HRAs 
were published on May 3, 2013 (78 FR 25909) (the section 36B proposed 
regulations). The section 36B proposed regulations provide that amounts 
newly made available for the current plan year under an HRA that is 
integrated with an eligible employer-sponsored plan are counted toward 
the employee's required contribution in determining the affordability 
of the coverage if the employee may use the amounts only for premiums 
or may choose to use the amounts for either premiums or cost sharing. 
An HRA generally must be integrated with an eligible employer-sponsored 
plan to satisfy the market reform provisions imposed by Title I of the 
Affordable Care Act. See Notice 2013-54 (2013-40 IRB 287 (September 30, 
2013)), (see Sec.  601.601(d)(2)(ii)(b) of this chapter), which is 
available at www.irs.gov.
    Similar to the 36B proposed regulations, under these proposed 
regulations, an employer's new contributions to an HRA are taken into 
account in determining (in other words, they reduce) an employee's 
required contribution if the HRA is integrated with an employer-
sponsored plan and the employee may use the amounts to pay premiums. 
Amounts in an HRA that may be used only for cost-sharing are not taken 
into account when determining affordability because they cannot affect 
the employee's out-of-pocket cost of acquiring minimum essential 
coverage.
B. Contributions to a Cafeteria Plan
    Many employers maintain section 125 cafeteria plans under which 
employees are given the option of making salary reduction contributions 
toward the cost of non-taxable benefits or receiving an equivalent 
amount in taxable cash. The nontaxable benefit choices may include both 
health and non-health benefits. If an employee elects to make salary 
reduction contributions and to have those amounts applied towards the 
cost of premiums, those contributions are treated as employee 
contributions, and the employee's household income is increased by the 
amount of the

[[Page 4306]]

contributions for purposes of the affordability determination under 
section 5000A(e)(1)(A).
    Alternatively, employers may make contributions that can be 
received only in the form of nontaxable benefits under the plan 
(sometimes referred to as flex contributions). In addition, some 
employers subsidize benefits available under the section 125 cafeteria 
plan so that an employee can elect a benefit while making salary 
reduction contributions in an amount less than the value of the 
benefit. Some employers will provide contributions even if the employee 
declines the subsidized benefit. For example, an employer might offer a 
benefit with a value of $10,000 for an employee salary reduction of 
$4,000, but provide other benefits with a value of $3,000 if the 
employee declines the $10,000 benefit.
    Comments are requested on the treatment of employer contributions 
under a section 125 cafeteria plan for purposes of section 5000A to the 
extent employees may not opt to receive the employer contributions as a 
taxable benefit, such as cash. Specifically, comments are requested 
regarding how these contributions should be taken into account for 
purposes of determining the affordability of coverage.

III. Wellness Program Incentives

A. Individuals Eligible for Employer-sponsored Coverage
    The preamble to the final section 5000A regulations provides that 
guidance on how wellness program incentives are counted in determining 
the affordability of coverage under section 5000A will be consistent 
with final rulemaking under section 36B. The proposed section 36B 
regulations address the treatment of wellness incentives by providing 
that, for purposes of determining an individual's required contribution 
for employer-sponsored coverage under section 36B(c)(2)(C)(i), wellness 
program incentives are treated as earned only if the incentives relate 
to tobacco use. This rule is consistent with other Affordable Care Act 
provisions (such as one allowing insurers to charge higher premiums 
based on tobacco use). Accordingly, these proposed regulations provide 
that, for purposes of determining for section 5000A an individual's 
required contribution for coverage under an employer-sponsored plan, 
wellness program incentives are treated as earned only if the 
incentives relate to tobacco use.
B. Individuals Ineligible for Employer-sponsored Coverage
    In general, for individuals ineligible for coverage under employer-
sponsored plans, the required contribution is the premium for the 
applicable plan reduced by the maximum amount of any premium tax credit 
allowable under section 36B for the taxable year. In general, the 
applicable plan is the lowest cost bronze plan available in the 
individual market through the Exchange serving the rating area in which 
the individual resides that would cover all members of the individual's 
nonexempt family. Pursuant to section 36B(b)(3)(C), the premium tax 
credit allowable under section 36B is calculated by reference to the 
adjusted monthly premium for the applicable second lowest cost silver 
plan without regard to any premium discounts or rebates in a state 
participating in the wellness discount demonstration project described 
in section 2705(l) of the Public Health Service Act (42 U.S.C. 300gg-
4(l)).
    A comment received on previously issued proposed regulations under 
section 5000A asked that, for purposes of computing the required 
contribution for an individual not eligible for coverage under an 
eligible employer-sponsored plan, the applicable plan for an individual 
residing in a rating area in a state participating in the individual 
market wellness program demonstration project disregard any premium-
based wellness incentive requirements, including incentives relating to 
tobacco use. Standards and processes implementing the individual market 
wellness program demonstration project have not yet been established. 
After the individual market wellness program demonstration project is 
implemented, additional guidance will be provided on whether and how 
individuals residing in a rating area participating in the project will 
take wellness incentives into account in determining the affordability 
of their coverage for purposes of section 5000A.
C. Simplified Method
    Proposed regulations previously issued under section 5000A (78 FR 
7314) included an alternative method of identifying the premium for the 
applicable plan when a single bronze plan is not offered that would 
cover all members of the nonexempt family. During the comment period to 
the proposed regulations, questions arose concerning the efficacy of 
the proposed simplified method, as well as whether an election to use 
the simplified method should be revocable. The final regulations 
removed the proposed alternative method, and the Treasury Department 
and the IRS continue to consider this issue.
    A taxpayer may be unable to find a single bronze plan that would 
cover all members of the taxpayer's nonexempt family. The final 
regulations provide the general rule that, if the Exchange serving the 
rating area where the individual resides does not offer a single bronze 
plan that would cover all members of the taxpayer's nonexempt family, 
the premium for the applicable plan is the sum of the premiums for the 
lowest cost bronze plans available in the Exchange that provide 
coverage for all members of the nonexempt family. The Treasury 
Department and the IRS request comments on alternative methods for 
identifying the premium for the applicable plan when a single bronze 
plan would not cover all members of the taxpayer's nonexempt family.

IV. Hardship Exemptions

    The final regulations specify that an individual who meets the 
requirements of 45 CFR 155.605(g)(3) (relating to individuals with 
gross income below the applicable return filing threshold who filed a 
return) or 45 CFR 155.605(g)(5) (relating to the affordability of 
coverage under an eligible employer-sponsored plan for family members) 
may claim a hardship exemption for a calendar year on a Federal income 
tax return. Consistent with guidance released by the Secretary of HHS 
on October, 28, 2013, the proposed regulations provide that an 
individual who enrolls in a plan through an Exchange during the open 
enrollment period for coverage for 2014 may claim a hardship exemption 
for months in 2014 prior to the effective date of the individual's 
coverage without obtaining a hardship exemption certification from an 
Exchange.
    If additional situations are identified where an individual should 
be allowed to claim a hardship exemption without obtaining a hardship 
exemption certification from an Exchange, the Secretary of HHS and the 
Secretary of the Treasury will continue to coordinate guidance. To 
facilitate issuing guidance in this situation, the proposed regulations 
provide that a taxpayer may claim a hardship exemption on a return if 
the Secretary of HHS issues published guidance of general applicability 
describing the hardship and indicating that the hardship can be claimed 
on a Federal income tax return pursuant to guidance published by the 
Secretary of the Treasury, and the Secretary of the Treasury issues 
published guidance of general applicability allowing an

[[Page 4307]]

individual to claim such hardship exemption on a Federal income tax 
return without obtaining a hardship exemption from an Exchange.
Monthly Penalty Amounts
    The final regulations provide that, for each taxable year, the 
shared responsibility payment is the lesser of the sum of monthly 
penalty amounts for each individual in the shared responsibility family 
or the sum of the monthly national average bronze plan premiums for the 
shared responsibility family. The monthly penalty amount is computed 
for the taxpayer, not for each individual in the shared responsibility 
family. To avoid any confusion about this treatment, the proposed 
regulations remove from Sec.  1.5000A-4(a) the clause ``for each 
individual in the shared responsibility family'' and add a reference to 
the taxpayer on whom the shared responsibility payment is imposed under 
Sec.  1.5000A-1(c).

Applicability Date

    These regulations are proposed to apply for months beginning after 
December 31, 2013.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866, as supplemented by Executive Order 13563. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to the proposed regulations. Pursuant to the Regulatory 
Flexibility Act (RFA) (5 U.S.C. chapter 6), it is hereby certified that 
the proposed regulations will not have a significant economic impact on 
a substantial number of small entities. The applicability of the 
proposed regulations is limited to individuals, who are not small 
entities as defined by the RFA (5 U.S.C. 601). Accordingly, the RFA 
does not apply. Therefore, a regulatory flexibility analysis is not 
required. Pursuant to section 7805(f) of the Code, the proposed 
regulations have been submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comment on its impact on small 
business.

Comments and Public Hearing

    Before the proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ``Addresses'' 
heading. The Treasury Department and the IRS request comments on all 
aspects of the proposed rules. All comments will be available at 
www.regulations.gov or upon request.
    A public hearing has been scheduled for May 21, 2014, beginning at 
10 a.m., in the Auditorium, Internal Revenue Building, 1111 
Constitution Avenue NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit electronic or 
written comments, and an outline of the topics to be discussed and the 
time to be devoted to each topic (signed original and eight (8) copies) 
by April 28, 2014. A period of 10 minutes will be allotted to each 
person for making comments. An agenda showing the scheduling of the 
speakers will be prepared after the deadline for receiving outlines has 
passed. Copies of the agenda will be available free of charge at the 
hearing.

Drafting Information

    The principal authors of the proposed regulations are Sue-Jean Kim 
and John B. Lovelace, Office of the Associate Chief Counsel (Income Tax 
& Accounting). Other personnel from the Treasury Department and the IRS 
participated in the development of the regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *

0
Par 2. An undesignated center heading is added immediately following 
Sec.  1.1563-4 to read as follows:
    Individual Shared Responsibility Payment for Not Maintaining 
Minimum Essential Coverage
0
Par. 3. Section 1.5000A-0 is amended by:
0
1. Revising the entry for Sec.  1.5000A-2(b)(2).
0
2. Removing the entries for Sec.  1.5000A-2(b)(2)(i), (b)(2)(ii), and 
(b)(2)(iii).
0
3. Revising the entries for Sec.  1.5000A-3(e)(4)(ii)(C) and 
(e)(4)(ii)(D).
0
4. Adding a new entry for Sec.  1.5000A-3(e)(4)(ii)(E).
0
5. Revising the entry for Sec.  1.5000A-3(h)(3).
    The revisions and addition read as follows.


Sec.  1.5000A-0  Table of contents.

* * * * *


Sec.  1.5000A-2  Minimum essential coverage.

* * * * *
    (b) * * *
    (2) Certain health care coverage not minimum essential coverage 
under a government-sponsored program.
* * * * *


Sec.  1.5000A-3  Exempt individuals.

* * * * *
    (e) * * *
    (4) * * *
    (ii) * * *
    (C) Wellness program incentives.
    (D) Credit allowable under section 36B.
    (E) Required contribution for part-year period.
* * * * *
    (h) * * *
    (3) Hardship exemption without hardship exemption certification.
* * * * *
0
Par. 4. Section 1.5000A-2 is amended by:
0
1. Revising paragraphs (b)(1)(ii) and (b)(2).
0
2. Removing the language ``health insurance'' in paragraph (g).
    The revisions read as follows:


Sec.  1.5000A-2  Minimum essential coverage.

* * * * *
    (b) * * *
    (1) * * *
    (ii) Medicaid. The Medicaid program under Title XIX of the Social 
Security Act (42 U.S.C. 1396 and following sections);
* * * * *
    (2) Certain health care coverage not minimum essential coverage 
under a government-sponsored program. Government-sponsored program does 
not mean any of the following:
    (i) Optional coverage of family planning services under section 
1902(a)(10)(A)(ii)(XXI) of the Social Security Act (42 U.S.C. 
1396a(a)(10)(A)(ii)(XXI));

[[Page 4308]]

    (ii) Optional coverage of tuberculosis-related services under 
section 1902(a)(10)(A)(ii)(XII) of the Social Security Act (42 U.S.C. 
1396a(a)(10)(A)(ii)(XII));
    (iii) Coverage of pregnancy-related services under section 
1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) of the Social Security Act 
(42 U.S.C. 1396a(a)(10)(A)(i)(IV), (a)(10)(A)(ii)(IX));
    (iv) Coverage limited to treatment of emergency medical conditions 
in accordance with 8 U.S.C. 1611(b)(1)(A), as authorized by section 
1903(v) of the Social Security Act (42 U.S.C. 1396b(v));
    (v) Coverage for medically needy individuals under section 
1902(a)(10)(C) of the Social Security Act (42 U.S.C. 1396a(a)(10)(C)) 
and 42 CFR 435.300 and following sections; or
    (vi) Coverage authorized under section 1115(a)(2) of the Social 
Security Act (42 U.S.C. 1315(a)(2));
    (vii) Coverage under section 1079(a), 1086(c)(1), or 1086(d)(1) of 
title 10, U.S.C., that is solely limited to space available care in a 
facility of the uniformed services for individuals excluded from 
TRICARE coverage for care from private sector providers; and
    (viii) Coverage under sections 1074a and 1074b of title 10, U.S.C. 
for an injury, illness, or disease incurred or aggravated in the line 
of duty for individuals who are not on active duty.
* * * * *
0
Par. 5. Section 1.5000A-3 is amended by:
0
1. Revising paragraphs (e)(3)(ii)(D) and (e)(3)(ii)(E).
0
2. Redesignating paragraphs (e)(4)(ii)(C) and (e)(4)(ii)(D) as 
(e)(4)(ii)(D) and (e)(4)(ii)(E), respectively, and adding and reserving 
a new paragraph (e)(4)(ii)(C).
0
3. Revising paragraphs (h)(1) and (h)(3).
    The revisions and additions read as follows:


Sec.  1.5000A-3  Exempt individuals.

* * * * *
    (e) * * *
    (3) * * *
    (ii) * * *
    (D) Employer contributions to health reimbursement arrangements. 
Amounts newly made available for the current plan year under a health 
reimbursement arrangement that is integrated with an eligible employer-
sponsored plan and that an employee may use to pay premiums are taken 
into account in determining the employee's or a related individual's 
required contribution.
    (E) Wellness program incentives. Nondiscriminatory wellness program 
incentives offered by an eligible employer-sponsored plan that affect 
premiums are treated as earned in determining an employee's or a 
related individual's required contribution to the extent the incentives 
relate to tobacco use. Wellness program incentives that do not relate 
to tobacco use are treated as not earned for this purpose.
* * * * *
    (4) * * *
    (ii) * * *
    (C) Wellness programs incentives. [Reserved]
* * * * *
    (h) Individuals with hardship exemption certification--(1) In 
general. Except as provided in paragraph (h)(3) of this section, an 
individual is an exempt individual for a month that includes a day on 
which the individual has in effect a hardship exemption certification 
described in paragraph (h)(2) of this section.
* * * * *
    (3) Hardship exemption without hardship exemption certification. An 
individual may claim an exemption without obtaining a hardship 
exemption certification described in paragraph (h)(2) of this section--
    (i) For any month that includes a day on which the individual meets 
the requirements of 45 CFR 155.605(g)(3) or 45 CFR 155.605(g)(5);
    (ii) For the months in 2014 prior to the individual's effective 
date of coverage, if the individual enrolls in a plan through an 
Exchange prior to the close of the open enrollment period for coverage 
in 2014; or
    (iii) For any month that includes a day on which the individual 
meets the requirements of any other hardship for which:
    (A) The Secretary of HHS issues guidance of general applicability 
describing the hardship and indicating that an exemption for such 
hardship can be claimed on a Federal income tax return pursuant to 
guidance published by the Secretary; and
    (B) The Secretary issues published guidance of general 
applicability, see Sec.  601.601(d)(2) of this chapter, allowing an 
individual to claim the hardship exemption on a return without 
obtaining a hardship exemption from an Exchange.
* * * * *
0
Par. 6. Section 1.5000A-4 is amended by revising paragraph (a) 
introductory text and paragraph (a)(1) to read as follows:


Sec.  1.5000A-4  Computation of shared responsibility payment.

    (a) In general. For each taxable year, the shared responsibility 
payment imposed on a taxpayer in accordance with Sec.  1.5000A-1(c) is 
the lesser of--
    (1) The sum of the monthly penalty amounts; or
* * * * *

John Dalyrmple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2014-01439 Filed 1-23-14; 4:15 pm]
BILLING CODE 4830-01-P