New HHS Guidance on Valentine’s Day Wrinkle


Back

October 23, 2013

Dear Friends and Colleagues:

Re: New HHS Guidance on Valentine’s Day Wrinkle

HHS has just issued guidance addressing the Valentine’s Day wrinkle. Late this evening, HHS published a clarification* acknowledging that individuals who sign up for coverage on the new exchange marketplaces after Valentine’s Day but before the end of the open enrollment period could be liable for the tax penalties associated with the ACA’s individual mandate. However, the new guidance clarifies that HHS would now provide a “hardship exemption” for such individuals, thereby absolving them from the tax penalty. In addition, HHS adopted Jackson Hewitt’s recommendation that such individuals will automatically receive such exemptions. For reference, we had earlier expressed concerns that HHS might instead require such individuals to file even more government paperwork to request exemptions (as will be required for individuals seeking other types of exemptions). For all of these reasons, we believe that this new guidance from HHS fairly protects American families who sign up for coverage by the end of the open enrollment period.

We celebrate this guidance and welcome more detailed clarifications. Specifically, the new guidance from HHS does not immediately clarify whether individuals must both sign up for coverage and remit premium payments by the end of the open enrollment period. Future guidance will presumably address this question, and we urge HHS to grant exemptions to all individuals who sign up for coverage by the end of the open enrollment period and pay their premiums within the permissible periods after open enrollment closes.

This move by HHS tackles one calendar consideration, and we urge HHS to address a much larger holiday concern. Beginning in November, many families begin to redirect their spending towards holiday purchases. Cash-strapped families simply won’t be able to find extra money to pay new insurance premiums during the holiday period. Thus, the glitches with healthcare.gov have prevented many of these families from buying coverage during October in the pre-Holiday season, when these families could best afford to do so.

For the Administration to meet its enrollment goal of enrolling 7 million Americans in the tax credit program, it must allow families to sign up when they have the cash to pay premiums. After the Holidays, the first time most families have available cash is when they receive their tax refund during the tax filing season. The refund amounts are considerable: for the 2011 tax year, the average federal refund for families with incomes between $15,000 and $50,000 exceeded $2,800.** Indeed, the federal tax refund represents the largest single “paycheck” that most American families receive during the year. And these are precisely the families that the ACA is intended to benefit (i.e., those between 100% and 400% of the federal poverty level).

The IRS’s announcement last Tuesday delaying the tax season adds an important (and perhaps overlooked) new wrinkle. Citing the effect of the government shutdown, the IRS said that it would delay the beginning of the tax filing season for perhaps 10 days to two weeks. Consequently, American families will not be able to get their refunds as early as they otherwise would – which means that the “liquidity injection” from tax refunds will happen much later than the Administration thought when it initially set March 31st as the end of the ACA’s initial open enrollment period.

Extending the open enrollment period through April 15, 2014 now may make sense. The federal government itself is the major supplier of liquidity to families during this period: the IRS issued roughly $36 billion in federal refunds between March 29, 2013 and April 19, 2013. And with 41.6 million Americans filing their returns during the last three weeks of the tax season,*** the federal government may find no better opportunity to sell them insurance. Fortunately, HHS retained the discretion under its existing rules**** to declare a “special enrollment period” and allow these families to enroll between April 1-15, 2014. And under HHS’s own rules, families who sign up either on March 31 or April 15 will have exactly the same effective date of coverage: May 1, 2014.*****

For friends in the media, all statements above are on the record. Additionally, you can find past posts about the Affordable Care Act (including the original October 8, 2013 post about the Valentine’s Day wrinkle) http://www.jacksonhewitt.com/Resource-Center/Affordable-Care-Act/. Please feel free to contact me at brian.haile@jtax.com or 615-761-6929 if I can be helpful in any way.

Yours,

Brian

* For reference, the CCIIO guidance is available at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/enrollment-period-faq-10-28-2013.pdf.

** Internal Revenue Service, Statistics of Income Division, July 2013, Table 3.3, available online at http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns-Publication-1304-%28Complete-Report%29#_tbla, accessed October 21, 2013.

*** IRS Tax Season Filing Statistics, 2013, available at http://www.irs.gov/uac/2013-and-Prior-Year-Filing-Season-Statistics, accessed October 21, 2013.

**** See 45 CFR 155.420(d)(9) (allowing individuals to enroll during a special enroll period if they demonstrate to the exchange that they meet other “exceptional circumstances”).

***** 45 CFR § 155.410(c)(1)(ii).

****** For reference, the ACA changes the excess medical deduction for persons under age 65 from 7.5% to 10% of adjusted gross income beginning with the 2013 tax year. For more information, see http://www.irs.gov/Individuals/2013-changes-to-itemized-deduction-for-medical-expenses. (We’re tax folks – so the details matter!)