November 7, 2013
Dear Friends and Colleagues:
The past two weeks have brought lots of news about which families may face the penalties if they sign up for coverage prior to the end of the ACA’s initial open enrollment period (currently slated to close on March 31, 2014). We review below the recent developments – and the issues that remain outstanding.
As you know, HHS released an FAQ* last week about new exemptions from the tax penalties. The HHS guidance sought to correct the “Valentine’s Day wrinkle” in the current regulations that would otherwise impose tax penalties on individuals who sign up for coverage on the new exchange marketplaces during the open enrollment period but after Valentine’s Day.
We issued an analysis on Monday that makes two points about the new FAQ guidance from HHS. First, the ACA’s tax penalty for remaining uninsured may affect those who apply for Medicaid at the end of the open enrollment period (and for whom the marketplace does not receive the paper applications until April 1st or later). The number may be small, though much will depend on the prevalence of/preference for paper applications and the possibility of a month-end surge of applications in late March. Even so, the penalty issue will cause unnecessary confusion for applicants because of the complexity of the analysis required to ascertain whether the household is exempt or faces a penalty liability. As our policy brief illustrates, coming up with the answer for these families just ain’t easy.
Second, a much larger number of uninsured families with dependents eligible for CHIP will face the tax penalties if they apply between mid-February and the end of the open enrollment period. This outcome is a result of the wording of HHS’s recent guidance, which appears to extend an exemption from the tax penalty to tax credit recipients. Without an explicit clarification from HHS that the exemption also applies to CHIP, only the parents (as individuals who are eligible for the tax credits) would be exempt – and the children eligible for CHIP would still be subject to the penalty.** (The same would also be true for parents who had insurance elsewhere but sought CHIP coverage for their children between mid-February and March 31, 2014.) This fact is significant because it only takes one uninsured, nonexempt family member (e.g., one dependent!) to trigger the monthly tax penalty, which, when annualized, typically equals 1% of income over the filing threshold.
We appreciate HHS’s very helpful clarification earlier this week (as reported in Politico Pulse), which complements our analysis about when certain Medicaid applicants would be exempt from the tax penalty. As noted in our original policy brief, we agree with HHS’s conclusions in this regard. We also continue to recommend that HHS expressly offer the same penalty relief to other families, particularly those with CHIP dependents, as the department recently provided to higher-income households (i.e., those families in which all household members qualify for the tax credits). We remain confident that HHS will find an equitable resolution, and we look forward to receiving this clarification.
The past two weeks mark important progress in clarifying those new enrollees who are and who may not be subject to the tax penalty. We certainly hope that this march of progress continues and soon incorporates the technical Medicaid and CHIP issues that have raised.
* CCIIO/HHS, “Shared Responsibility Provision Question and Answer,” October 28, 2013, available at http://www.cms.gov/HHS/Resources/Fact-Sheets-and-FAQs/Downloads/enrollment-period-faq-10-28-2013, accessed October 30, 2013.
** For reference, families with incomes between 138% FPL and the CHIP income limits in a given state (often 200% to 300% FPL) are likely to have their children eligible for CHIP (and not the tax credits), while the parents will be in the tax credit program.