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"Shared responsibility payment" buys you nothing

Fact Sheet: Individual Shared Responsibility for Health Insurance Coverage and Minimum Essential Coverage Proposed Rules

Centers for Medicare and Medicaid Services
January 30, 2013

Under the Affordable Care Act, the Federal government, State governments, insurers, employers, and individuals are given shared responsibility to reform and improve the availability, quality, and affordability of health insurance coverage in the United States. Starting in 2014, the individual shared responsibility provision calls for each individual to have basic health insurance coverage (known as minimum essential coverage), qualify for an exemption, or make a shared responsibility payment when filing a federal income tax return.

Highlights of the Proposed Regulations

A principle in implementing the individual shared responsibility provision is that the shared responsibility payment should not apply to any taxpayer for whom coverage is unaffordable, who has other good cause for going without coverage, or who goes without coverage for only a short time.  The proposed regulations include several rules to implement this principle.

For example:

Hardship Exemption Clarified to Protect Taxpayers, Address Key Concerns

The statute gives HHS authority to exempt individuals determined to “have suffered a hardship with respect to the capability to obtain coverage.”  In developing these proposed regulations, HHS considered several particular circumstances that provide good cause to go without coverage.  To provide clarity for taxpayers facing these circumstances, the HHS proposed regulations enumerate several situations that will always be treated as constituting a hardship and therefore allow for an exemption.  Hardship exemptions include:

* Individuals whom an Exchange projects will have no offer of affordable coverage (even if, due to a change in circumstance during the year, it turns out that the coverage would have been affordable).  This rule will protect individuals who turn down coverage because the Exchange projects it will be unaffordable but whose actual income for the year turns out to be higher so they are not eligible for the affordability exemption;

* Certain individuals who are not required to file an income tax return but who technically fall outside the statutory exemption for those with household income below the filing threshold; and

* Individuals who would be eligible for Medicaid but for a state’s choice not to expand Medicaid eligibility.  This rule will protect individuals in states that, pursuant to the Supreme Court decision, choose not to expand Medicaid eligibility.
 
The HHS regulations also provide that the hardship exemption will be available on a case-by-case basis for individuals who face other unexpected personal or financial circumstances that prevent them from obtaining coverage.
 
Specific Rules and Process for Receiving an Exemption

The proposed regulations also codify the statute’s nine categories of individuals who are exempt from the shared responsibility payment. These categories are as follows:

Individuals who cannot afford coverage;
Taxpayers with income below the filing threshold;
Members of Indian tribes;
Hardship;
Individuals who experience short coverage gaps.
Religious conscience;
Members of a health care sharing ministry;
Incarcerated individuals; and
Individuals who are not lawfully present.

http://www.cms.gov/apps/media/fact_sheets.asp (Select the Fact Sheet on "Individual Shared Responsibility..." dated January 30, 2013.)

Comment:

By Don McCanne, M.D.

Today CMS and the IRS released two sets of proposed rules which included the exemptions that will be allowed to avoid having to pay a penalty for not being insured.

Basically, the exempt individuals will be those for whom there are no affordable plans, those whose income falls below the threshold for filing tax returns, or those who would qualify for Medicaid under federal law but their state elected not to expand eligibility. A few other exemptions are listed in the excerpts above.

One concern in the actual rule (though not listed in the CMS Fact Sheet) is that the exemption for individuals who would otherwise have to pay more than 9.5% of their income for their share of the premium of an employer-sponsored plan applies only to the employee's coverage, but not to coverage of the family members as well. At today's premiums, this means that an employee could pay much more than 9.5% of income if the family were to be included under the employer-sponsored plan, and that would be just for the premiums. The deductibles and other cost sharing would be in addition.

It is interesting that, instead of calling the penalty for being uninsured a tax or a fine, CMS now calls it a "shared responsibility payment," a payment to be made when filing a federal income tax return. It is ironic that this shared responsibility payment buys you... nothing!

With all of the administrative waste that characterizes our health care system, this rule adds even more administration complexity by providing opportunities to allow individuals to remain uninsured. And the reward is, if they qualify, they don't have to make a shared responsibility payment. Hurray!

What happened to the reform advocates who were trying to advance policies that would ensure that everyone was covered? Didn't they have a say in this process? Oh, that's right. Sen. Baucus had them arrested.